Question

The condensed financial statements of Ivanhoe Company for the years 2016 and 2017 are presented below.

IVANHOE COMPANY Balance Sheets December 31 (in thousands)
		2017		2016
Current assets
Cash and cash equivalents		$330		$360
Accounts receivable (net)		580		510
Inventory		550		480
Prepaid expenses		130		160
Total current assets		1,590		1,510
Property, plant, and equipment (net)		410		380
Investments		120		120
Intangibles and other assets		530		510
Total assets		$2,650		$2,520
Current liabilities		$930		$900
Long-term liabilities		570		470
Stockholders’ equity—common		1,150		1,150
Total liabilities and stockholders’ equity		$2,650		$2,520

IVANHOE COMPANY Income Statements For the Year Ended December 31 (in thousands)
		2017		2016
Sales revenue		$3,890		$3,550
Costs and expenses
Cost of goods sold		1,080		1,000
Selling & administrative expenses		2,400		2,330
Interest expense		10		20
Total costs and expenses		3,490		3,350
Income before income taxes		400		200
Income tax expense		160		80
Net income		$ 240		$ 120

Compute the following ratios for 2017 and 2016. (Round current ratio and inventory turnover to 2 decimal places, e.g 1.83 and all other answers to 1 decimal place, e.g. 1.8 or 12.6%.)

(a)		Current ratio.
(b)		Inventory turnover. (Inventory on December 31, 2015, was $410.)
(c)		Profit margin.
(d)		Return on assets. (Assets on December 31, 2015, were $2,720.)
(e)		Return on common stockholders’ equity. (Equity on December 31, 2015, was $970.)
(f)		Debt to assets ratio.
(g)		Times interest earned.

2017			2016
Current ratio.			:1			:1
Inventory turnover.
Profit margin.			%			%
Return on assets.			%			%
Return on common stockholders’ equity.			%			%
Debt to assets ratio.			%			%
Times interest earned.			times			times

Answer 1

(1)

current ratio = current assets/current liabilities

for 2017,

= $1590/$930 = 1.71 times

for 2016,

= $1510/$900 = 1.68 times

(2)

inventory turnover = cost of goods sold/average inventory

for 2017,

= $1080/{($550 + $480)/2} = 2.10 times

for 2016,

= $1000/{($480 + $410)/2} = 2.25 times

(3)

profit margin = net income/sales

for 2017,

= $240/$3890 = 6.2%

for 2016,

= $120/$3550 = 3.4%

(4)

return on assets = earning before interest and taxes/average total assets

for 2017,

($3890 - $1080 - $2400)/{($2650 + $2520)/2}

= $410/2585

= 15.9%

for 2016,

($3550 - $1000 - $2330)/{($2520 + $2720)/2}

= $220/$2620

= 8.4%