(Liquidity analysis and interpretation) Refere to Simon Company information belo
ID: 2424149 • Letter: #
Question
(Liquidity analysis and interpretation)
Refere to Simon Company information below. The companys income statements for the year ended December 31, 2015 and 2014, follow. Assume that all sales are on credit and the compte: (1) day's sales uncollected, (2) accounts receivable turnover, (3) inventory turnover, and (4) days's sales in inventory. Comment on the changes in the ratios from 2014 a to 2015. (round amounts to one decimal)
2. (Risk and capital structure analysis) Compare the company's long-term risk and capital structure positions at the end of 2015 and 2014 by computing ratios: (1) debt and equity ratios-percent rounded to one decimal, (2) debt-to equity ratio - rounded to two decimals and (3) times interest earned-rounded to one decimal. Comment on these ratio results.
Simon Companys information:
At December 31
2013
Long-term notes payable secured by
mortgage on plant assets
$377,500
For Year ended December 31 2015 2014 sales $673,500 $532,000 Cost of goods sold $411,225 $345,500 Other operating expenses 209,550 134,980 Interest expense 12,100 13,300 Income taxes 9,525 8,845 Total cost and expenses 642,400 502,625 Net income 31,100 29,375 Earnings per share 1.90 1.80Explanation / Answer
Year 2015 2014 1) Days Sales UnCollected : (Accounts Receivable/ Net Sales ) *365 (89500/673500)*365 (62500/532000)*365 Days Sales UnCollected : 49 43 Comment : Increase in ratio indicates co will be able to collect their receiable early than last year 2) Accounts Receivable Turnover : Net Annual Credit Sales (Beginning Accounts Receivable + Ending Accounts Receivable) / 2 Assumed Sales are Credit Sales Accounts Receivable Turnover : 673500/{(89500+62500)/2} 532000/{(62500+50200)/2} Avg Receivables 76000 56350 8.86 9.44 Comment : Since this has been reduced, working capital will get blocked as inventory is held upmore 3) Inventory Turnover : Sales/Inventory Sales/Inventory 673500/112500 532000/82500 5.99 6.45 Comment : Co inventory is sold and replaced capacity had been decreased as there was a decrease in Ration 4) Days Sales of Inventory : ( Inventory / Cost of Sales ) *365 (112500/411225)*365 (82500/345500)*365 99.85 87.16 Comment : Company stock of inventory lying has been increased, Stcok will be last for 100 days Debt to Equity Ratio : Debt / Equity Debt / Equity 98500/(163500+131100) 101500/(163500+104750) Single Digit Round Off 0.3 0.4 Double Digit Round Off 0.33 0.38 Comment: Since Debtequity Ratio is decreased More investor financing is used for funding Interest Earned Ratio : Income before interest and Taxes / Interest 31100+9525+12100/12100 29375+8845+13300/13300 4.36 3.87 Comment: Since it has been improved , Co is in postion to pay interest better. Since Profits are increased
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