Question

Profitability ratios: l. Profit margin % m. Return on assets % n. Return on equity % SMOLIRA GOLF CORP. 2018 Income Statement   Sales $ 336,329   Cost of goods sold 231,000   Depreciation 21,600   Earnings before interest and taxes $ 83,729   Interest paid 14,400   Taxable income $ 69,329   Taxes (21%) 14,559   Net income $ 54,770       Dividends $ 21,000       Retained earnings 33,770 Some recent financial statements for Smolira Golf Corp. follow.

  

SMOLIRA GOLF CORP. 2017 and 2018 Balance Sheets
Assets									Liabilities and Owners’ Equity
	2017				2018					2017				2018
Current assets									Current liabilities
Cash	$	24,056			$	24,200			Accounts payable	$	23,284			$	27,200
Accounts receivable		12,548				15,300			Notes payable		12,000				10,900
Inventory		25,592				27,200			Other		11,671				15,900
Total	$	62,196			$	66,700			Total	$	46,955			$	54,000
									Long-term debt	$	90,000			$	93,294
									Owners’ equity
									Common stock and paid-in surplus	$	42,000			$	42,000
									Accumulated retained earnings		208,936				242,706
Fixed assets
Net plant and equipment	$	325,695			$	365,300			Total	$	250,936			$	284,706
Total assets	$	387,891			$	432,000			Total liabilities and owners’ equity	$	387,891			$	432,000
Find the following financial ratios for Smolira Golf Corp. (use year-end figures rather than average values where appropriate): (Enter your profitability ratio answers as a percent rounded to 2 decimal places, e.g., 32.16. Round the remaining answers to 2 decimal places, e.g., 32.16.)    j. Times interest earned times k. Cash coverage ratio times Long-term solvency ratios: 2017 2018 g. Total debt ratio times times h. Debt-equity ratio times times i. Equity multiplier times times Short-term solvency ratios: 2017 2018 a. Current ratio times times b. Quick ratio times times c. Cash ratio times times Asset utilization ratios: d. Total asset turnover times e. Inventory turnover times f. Receivables turnover times

Answer 1

Answer to Part a.

Current Ratio = Current Assets / Current Liabilities

2017:
Current Ratio = 62,196 / 46,955
Current Ratio = 1.32 times

2018:
Current Ratio = 66,700 / 54,000
Current Ratio = 1.24 times

Answer to Part b.

Quick Ratio = (Current Assets – Inventory) / Current Liabilities

2017:
Quick Ratio = (62,196 – 25,592) / 46,955
Quick Ratio = 36,604 / 46,955
Quick Ratio = 0.78 times

2018:
Quick Ratio = (66,700 – 27,200) / 54,000
Quick Ratio = 39,500 / 54,000
Quick Ratio = 0.73 times

Answer to Part c.

Cash Ratio = Cash and Cash Equivalents / Current Liabilities

2017:
Cash = 24,056 / 46,955
Cash Ratio = 0.51 times

2018:
Cash = 24,200 / 54,000
Cash Ratio = 0.45 times

Answer to Part d.

Total Asset Turnover = Sales / Average Total Assets
Average Total Assets = (387,891 + 432,000)/ 2
Average Total Assets = $409,945.50

Total Asset Turnover = 336,329 / 409,945.50
Total Asset Turnover = 0.82 times

Answer to Part e.

Inventory Turnover = Cost of Goods Sold / Average Inventory
Average Inventory = (25,592 + 27,200) / 2
Average Inventory = $26,396

Inventory Turnover = 231,000 / 26,396
Inventory Turnover = 8.75 times