Question

Silver Computer Corporation
Use the financial statements below to complete a financial ratio analysis.
The ratios should be calculated on the ratio worksheet. Make sure to reference
amounts from the statements onto your ratios. Be sure that your answer
uses the correct format for that ratio: times, percentage, days, dollar amount.
Ratio Format:
Show with your answer whether the ratio is times, perentage, or dollar amount.
For example:
o	Current ratio is times, so it would be shown as a number compared to one.
		(ie. 2.08 to 1 or 2.08:1 )
o	Working capital is a dollar amount, so it would be shown as currency.
		(ie. $11, 190 )
o	Net margin is a percentage, so it would be shown with a % sign.
		(ie. 12.7% )
Take a look at the ratio descriptions in the textbook to determine if the ratio is
times, percentage, or dollar amount.
Decimal Places on Ratios
The following are typically accepted rules for decimal places on ratios:
o	Ratios: two decimal places
o	Dollars: two decimal places (the book showed three decimal places for
	earnings per share but we don't need to do that for this class)
o	Days: one decimal place
o	Percentages: one decimal place (the textbook showed percentages to two
	decimal places but I think that is overkill)
o	Price-Earnings ratio: two decimal places
o	Times: two decimal places
Silver Computer Corporation
Income Statement
For the Year Ended December 31, 2016
Sales					$      47,240
Cost of goods sold					18,920
Gross profit					28,320
Operating expenses
	Utilities		$         6,430
	Wages		8,310
	Rent		1,730		16,470
Operating income					11,850
Other revenue and expense
	Interest revenue		$            940
	Interest expense		1,190		2,130
Income before income taxes					9,720
Income taxes					3,730
Net income					$         5,990
Silver Computer Corporation
Comparative Balance Sheets
As of December 31, 2016 and 2015
							Change
			2016		2015		Amount		Percent
		Assets
Current assets
	Cash		$         3,290		$         6,230		$       (2,940)		-47.2%
	Marketable securities		1,120		1,920		(800)		-41.7%
	Accounts receivable		3,980		6,790		(2,810)		-41.4%
	Merchandise inventory		6,880		5,110		1,770		34.6%
	Supplies		1,270		2,130		(860)		-40.4%
	Total current assets		16,540		22,180		(5,640)		-25.4%
Plant and equipment
	Equipment		10,560		6,450		4,110		63.7%
	Truck		26,310		18,310		8,000		43.7%
	Total plant and equipment		36,870		24,760		12,110		48.9%
Total assets			$      53,410		$      46,940		$         6,470		13.8%
		Liabilities
Current liabilities
	Accounts payable		$         6,940		$         4,390		$         2,550		58.1%
	Wages payable		990		1,510		(520)		-34.4%
	Accrued liabilities		2,420		1,920		500		26.0%
Total current liabilities			10,350		7,820		2,530		32.4%
Long-term liabilities
	Long-term notes payable		9,900		6,300		3,600		57.1%
Total liabilities			20,250		14,120		6,130		43.4%
		Stockholder's Equity
Common stock			8,460		6,610		1,850		28.0%
Retained earnings			29,700		26,210		3,490		13.3%
Total stockholder's equity			38,160		32,820		5,340		16.3%
Total liabilities & equity			$      58,410		$      46,940		$      11,470		24.4%
Notes for preparation of financial ratios:
o	All of Silver Corporations sales were on account.
o	1,692 shares of common stock were outstanding at the end of 2016.
o	$2.50 of dividends per share were paid in 2016.
o	The market price per share of Silver stock was $34.00 for all of 2016.
										Answer this question Silver Computer Corporation Liquidity and Solvency Financial Ratios Liquidity Ratios Note - Working Capital shown as an example to follow on the remaining ratios. Working Capital 16,540 10,350 1.6:1 Current ratio Quick ratio * Quick assets are cash, marketable securities, and accounts receivable Accounts receivable turnover Average days to collect receivables Inventory turnover Average days to sell inventory Operating cycle Solvency Ratios (Long-term credit risk) Debt ratio Interest coverage ratio

Answer 1

Liquidity Ratios
1.Current Ratio = Current Assets
Current Liabilities
= 16540
10350
= 1.60:1

2. Quick Ratio = Quick Assets
Current Liabilities
= 8390
10350
= 0.81:1

3. Accounts Receivable Turnover Ratio = Net Credit Sales
Average Receivables
= 47240
(6790+3980)/2
= 8.77 Times

4. Average Days to collect receivables = 365 days
Accounts Receivable Turnover Ratio
= 365
8.77
= 42 days

5. Inventory Turnover Ratio = Cost of Sales
Average Inventory
= 18920
(5110+6880)/2
= 3.16 Times

6. Average days to sell inventory = 365 days
Inventory Turnover Ratio
= 365
3.16
= 116 days

7. Operating Cycle = Average days to sell inventory+ Average Days to collect receivables
=116+42
= 158 days

Solvency Ratios
1. Debt Ratio = Total Liabilities
Total Assets
= 53410
20250
= 2.64:1

2. Interest Coverage Ratio = Earnings before interest and tax
Interest Expense
= 9720+1190
1190
= 9.17:1