Problem

Balsum Corporation is engaged primarily in the business of manufacturing raincoats. Shown...

Balsum Corporation is engaged primarily in the business of manufacturing raincoats. Shown below are selected data from a recent annual report. (Dollar amounts are stated in thousands.)

 

Beginning of the Year

End of the Year

Total current assets.

    $ 43,000

$ 82,000

Total current liabilities 

     54,000

75,000

Total assets 

  230,000

390,000

Total stockholders’ equity

  120,000

205,000

Operating income

 

74,000

Net income      

 

51,000

The company has long-term liabilities that bear interest at annual rates ranging from 8 percent to 12 percent.

Instructions

a. Compute the company’s current ratio at (1) the beginning of the year and (2) the end of the year. (Carry to two decimal places.)


b. Compute the company’s working capital at (1) the beginning of the year and (2) the end of the year. (Express dollar amounts in thousands.)


c. Is the company’s short-term debt-paying ability improving or deteriorating?


d. Compute the company’s (1) return on average total assets and (2) return on average stockholders’ equity. (Round average assets and average equity to the nearest dollar and final computations to the nearest 1 percent)


e. As an equity investor, do you think that Balsum’s management is utilizing the company’s resources in a reasonably efficient manner? Explain.

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