Answer:
Smolira Golf Corp.
Short-term solvency ratios: 2014 2015
a. Current ratio 1.15 times 1.20 times
b. Quick ratio 0.67 times 0.72 times
c. Cash ratio 0.42 times 0.43 times
Asset utilization ratios:
d. Total asset turnover times 0.90 times
e. Inventory turnover times 9.03 times
f. Receivables turnover times 24.97 times
Long-term solvency ratios: 2014 2015
g. Total debt ratio times times 0.35 times 0.36 times
h. Debt–equity ratio times times 0.55 times 0.57 times
i. Equity multiplier times times 0.65 times 0.64 times
j. Times interest earned times 5.36 times
k. Cash coverage ratio times 1.50 times
Profitability ratios:
I. Profit margin % = 10.79%
m. Return on assets % = 9.70%
n. Return on equity % = 15.25%
Step-by-step explanation:
a) Data and Calculations:
SMOLIRA GOLF CORP.
2014 and 2015 Balance Sheets
Assets
2014 2015
Current assets
Cash $24,236 $26,000
Accounts receivable 14,348 17,100
Inventory 27,892 29,000
Total current assets $ 66,476 $72,100
Fixed assets
Net plant &
equipment $343,695 $364,900
Total assets 410,171 $437,000
Liabilities and equity
Current liabilities:
Accounts payable $25,084 $29,000
Notes payable 19,000 12,700
Other current liabilities 13,471 18,300
Total $ 57,555 $60,000
Long-term debt $ 88,000 $99,000
Total $145,555 $159,000
Owners’ equity:
Common stock and
paid-in surplus $45,000 $45,000
Accumulated
retained earnings 219,616 233,000
Total liabilities and
owners’ equity $410,171 $437,000
SMOLIRA GOLF CORP.
2015 Income Statement
Sales $ 392,640
Cost of goods sold 257,000
Depreciation 48,800
Earnings before
interest and taxes $86,840
Interest paid 16,200
Taxable income $70,640
Taxes (40%) 28,256
Net income $ 42,384
Dividends $ 29,000
Retained earnings 13,384
Short-term solvency ratios: 2014 2015
a. Current ratio times times $ 66,476/$ 57,555 $72,100/$60,000
1.15 times 1.20 times
Current assets/Current liabilities
b. Quick ratio times times $38,584/$57,555 $43,100/$60,000
0.67 times 0.72 times
= (Current assets- Inventory)/Current liabilities
c. Cash ratio times times $24,236/$57,5555 $26,000/$60,000
0.42 times 0.43 times
Cash ratio = Cash/Current liabilities
Asset utilization ratios:
d. Total asset turnover times = Sales/Total asset = $ 392,640/$437,000 = 0.90 times
e. Inventory turnover times = Cost of goods sold/Average Inventory = $257,000/$28,446 = 9.03 times
f. Receivables turnover times = Sales/Average Receivable = $392,640/$15,724 = 24.97 times
Long-term solvency ratios: 2014 2015
g. Total debt ratio times times = Total Debt/Total Assets
= $145,555/$410,171 $159,000/$437,000
= 0.35 times 0.36 times
h. Debt–equity ratio times times
= $145,555/$264,616 $159,000/$278,000
= 0.55 times 0.57 times
i. Equity multiplier times times
= $264,616/$410,171 $278,000/$437.000
= 0.65 times 0.64 times
= Equity/Assets
j. Times interest earned times $86,840/$16,200
= 5.36 times
= EBIT/Interest Expense
k. Cash coverage ratio times = $24,236/$16,200 = 1.50 times
Profitability ratios:
I. Profit margin % = Net income/Sales = $42,384/$392,640 * 100 = 10.79%
m. Return on assets % = Net income/Assets
= $42,384/$437,000 * 100 = 9.70%
n. Return on equity % = Net income/Equity
= $42,384/$278,000 * 100
= 15.25%