Question

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SOL COMPANY Comparative Statements of Financial Position December 31, 2018 2018 $423,000 80.000 85,000 2017 $383,000 60,000 75,000 15,000 18.000 $551.000 Assets Property, plant and equipment (net) Inventory... Accounts receivable (net) Short-term investments 18,000 21.000 S627,000 Cash.. Total assets Equity and liabilities Share capital - ordinary, $5 par Retained earnings Bonds payable... Accounts payable. Income tax payable Total equity and liabilities $150,000 223.000 $150,000 200.000 80,000 110.000 120,000 122.000 12,000 S627,000 11,000 S551.000 SOL COMPANY Income Statement For the Year Ended December 31, 2018 Net sales Cost of goods sold Gross profit. Operating expenses Income from operations Interest expense Income before income taxes Income tax expense Net income $500.000 315.000 185.000 120,800 64.200 7,500 56,700 20.000 S 36.700 Additional information: Cash dividends of $13,700 were declared and paid in 2018. a. b. Market value of ordinary shares on December 31, 2018, was $19.5 per share. Please compute the ratios for 2018 as follows (please show your calculation) Sol Company Ratio Calculations Liquidity Current ratio Acid -test ratio Accounts receivables turnover Average collection period in days Inventory turnover Days in inventory Profitability Profit margin Asset turnover Return on assets Return on ordinary shareholders' equity Earnings per share (EPS) Price earning (PE) ratio Payout ratio Solvency Debt to asset ratio Times interest earned

Answer 1

	Formula	Answer		Working
Liquidity
Current Ratio	Current Assets / Current Liabilties	1.52	: 1	=(80000+85000+18000+21000)/(122000+12000)
Acid test Ratio	(Cash + Accounts Receivables + Marketable Securities) / Current Liabilities	0.93	: 1	=(85000+18000+21000)/(122000+12000)
Accounts Receivable Turnover	Net Credit Sales / Average Accounts Receivables	6.25	times	=500000/80000
Average Accounts Reecivables	(Opening + Closing) / 2	$    80,000.00		=(75000+85000)/2
Average Collection Period	365 / Accounts Receivable Turnover	58.40	days	=365/6.25
Inventory Turnover	Cost of Goods sold / Average Inventory	4.50	times	=315000/70000
Average Inventory	(Opening + Closing) / 2	$    70,000.00		=(80000+60000)/2
Days in Inventory	365 / Inventory Turnover	81.11	days	=365/4.5
Profitability
Profit Margin	Net Income / Sales x 100	7.34	%	=36700/500000*100
Asset Turnover	Sales / Average Total Assets	0.85	times	=500000/589000
Average Total Assets	(Opening + Closing) / 2	$ 589,000.00		=(627000+551000)/2
Return on Assets	Net Income / Average Total Assets x 100	6.23	%	=36700/589000*100
Return on Ordinary Shareholders Equity	Net Income / Average Stockholders Equity x 100	10.15	%	=36700/361500*100
Average Stockholders Equity	(Opening + Closing) / 2	$ 361,500.00		=(150000+200000+150000+223000)/2
Earnings per share (EPS)	Net Income / Stock Outstanding	$               1.22		=36700/30000
Oustanding Stock	Share Capital / Par value per share	30000.00		=150000/5
Price Earning (PE) Ratio	Price / EPS	15.98		=19.5/1.22
Payout Ratio	Dividend paid / Net income x 100	37.33	%	=13700/36700*100
Solvency
Debt to Asset Ratio	Total Liabilities / Total Assets	0.41		=(120000+122000+12000)/627000
Times Interest Earned	EBIT / Interest Expenses	8.56		=64200/7500