Question

OHARA COMPANY

Income Statement
For the Year Ended December 31, 2017
Net sales $2,218,500
Cost of goods sold 1,012,400
Selling and administrative expenses 906,000
Interest expense 78,000
Income tax expense 69,000
Net income $ 153,100
OHARA COMPANY
Balance Sheet
December 31, 2017
Assets
Current assets
Cash $ 60,100
Debt investments 84,000
Accounts receivable (net) 169,800
Inventory 145,000
Total current assets 458,900
Plant assets (net) 575,300
Total assets $ 1,034,200
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable $ 160,000
Income taxes payable 35,500
Total current liabilities 195,500
Bonds payable 200,000
Total liabilities 395,500
Stockholders’ equity
Common stock 350,000
Retained earnings 288,700
Total stockholders’ equity 638,700
Total liabilities and stockholders’ equity
$1,034,200



Additional information: The net cash provided by operating activities for 2017 was $190,800. The cash used for capital expenditures was $92,000. The cash used for dividends was $31,000. The weighted-average number of shares outstanding during the year was 50,000.

(i) Working capital. (2016: $160,500; 2017: $263,400)
(ii) Current ratio. (2016: 1.65:1; 2017: 2.35:1)
(iii) Free cash flow. (2016: $48,700; 2017: 67,800)
(iv) Debt to assets ratio. (2016: 31%; 2017: 38.2%)
(v) Earnings per share. (2016: $3.15; 2017: $3.06)

Answer 1

Step-by-step explanation:

From the given information, the ratio analysis for the year 2017 at OHARA Company can be computed as follows:

1. Working capital = Current (assets - liabilities)

Working capital = $458900 - $195500

Working capital = $263,400 (for 2017)

Given that the working capital for 2016 = $160,500

Thus, the % increase of 2017 over 2016 = 64.11% increase.

2. Current ratio = Current assets / Current liabilities

Current ratio = 458,900/195,500

Current ratio = 2.35 (for 2017)

Given that the Current ratio for 2016 = 1.65

Thus, the % increase of 2017 over 2016 = 42.43% increase

3. Free cash flows = Operating cash flows - Capital expenditure - dividends

Free cash flows = $190800 - $92000 - $31000

Free cash flows = $67,800

Given that the free cash flow for 2016 = $48,700

Thus, the % increase of 2017 over 2016 = 39.22%

4.

`Debt to assets ratio = \frac{Total \ debt} { total \ assets}`

Debt to assets ratio = 395,500/10,34,200

Debt to assets ratio = 38.24%

Given that the debt to assets ratio for 2016 = 31%

Thus, the % increase of 2017 over 2016 = 23.35%

5.

Earnings per share =
`(earnings \ available \ to \ equity \ shares)/(weighted \ a verage \ equity \ shares)`

Earnings per share =
`(153100)/(50000)`

Earnings per share = $3.06

Given that the earnings per share = $3.15

Thus, the % decrease of 2017 over 2016 = 2.86%