Comparative financial statements for Weller Corporation, a merchandising company

Question

Comparative financial statements for Weller Corporation, a merchandising company, for the fiscal year ending December 31 appear below. The company did not issue any new common stock during the year. A total of 600,000 shares of common stock were outstanding. The interest rate on the bond payable was 10%, the income tax rate was 40% and the dividend per share of common stock was $0.75 last year and $0.40 this year. The market value of the company's common stock at the end of the year was $24. All of the company's sales are on account. Weller Corporation Comparative Balance Sheet (dollars in thousands) This Year Last Year Current assets: 1,090 1,290 9,600 2,900 10,800 Accounts receivable, net 7,500 Prepaid expenses Total current assets 24,390 20,180 Property and equipment Land Buildings and equipment, net 9,700 9,700 44.458 38,954 54,158 48,654 $78,548 $68,834 Total property and equipment Total assets Liabilities and Stockholders' Equity Current liabilities: Accounts payable Accrued liabilities $20,100 $17,600 790 990 Accnued u payable Notes payable, short term Total current iabilities Long-term liabilities: Bonds payable 21,320 18,620 9,600 30,920 28,220 9,600 Total liabilities Stockholders' equity Common stock 600 600 4.000 Additional paid-in capital 4.000 4,600 4,600 Total paid-in capital Retained earnings 43,028 36,014 47.628 40,614 $78,548 $68,834 Total stockholders' equity Total liabilities and stockholders' equity

Explanation / Answer

Answer

1 Calculation of working capital Working Capital is a measure of both a company's efficiency and its short-term financial health. Working capital is calculated as: Working Capital = Current Assets - Current Liabilities. Current assets Amounts in $ Cash 1090 Account receivables 9600 Inventory 12900 Prepaid Expeses 800 Total 24390 Current Liabilities Account payable 20100 Accrued liabilities 990 notes payable 230 Total 21320 Working capital 3070 2 Current Ratio The current ratio is a financial ratio that measures whether or not a firm has enough resources to pay its debts over the next 12 months. It compares a firm's current assets to its current liabilities Current Ratio=current assets/current liabilities Total Current assets 24390 Total Current Liabilities 21320 So Current Ratio           1.14 3 Acid-test ratio In finance, the Acid-test or quick ratio or liquidity ratio measures the ability of a company to use its near cash or quick assets to extinguish or retire its current liabilities immediately. Acid-test ratio= Total current assets-inventories-prepaid expenses/current liabilities Total current assets 24390 Inventories 12900 Prepaid expenses 800 10690 Total Current Liabilities 21320 So Acid-test ratio is           0.50

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