Compute the liquidity and profitability ratios of Frizell Company for 2013 and 2

Question

Compute the liquidity and profitability ratios of Frizell Company for 2013 and 2014

Problem 13-4A (Part Level Submission) The following financial information is for Frizell Company. FRIZELL COMPANY Balance Sheets December 31 2013 ssets Cash Debt investments (short-term) Accounts receivable Inventory Prepaid expenses Land Building and equipment (net) Total assets Liabilities and Stockholders Equity Notes payable Accounts payable Accrued liabilities Bonds payable, due 2017 Common stock, $10 par Retained earnings Total liabilities and stockholders' equity 2014 $70,000 65,000 40,000 90,000 165,000 23,000 130,000 185,000 55,000 104,000 230,000 25,000 130,000 260,000 $170,000 $120,000 52,000 40,000 170,000 200,000 200,000 65,000 40,000 250,000 149,000 $874,000$698,000 FRIZELL COMPANY Income Statements For the Years Ended December 31 2014 2013 $790,000 575,000 215,000 167,000 $ 48,000 Sales revenue Cost of goods sold Gross profit Operating expenses Net income $882,000 640,000 242,000 190,000 $52,000 Additional information: 1. Inventory at the beginning of 2013 was $115,000. 2. Accounts receivable (net) at the beginning of 2013 were $86,000. 3. Total assets at the beginning of 2013 were $660,000 4. No common stock transactions occurred during 2013 or 2014. 5. All sales were on account.

Explanation / Answer

LIQUIDITY RATIO Current Ratio = Current Assets ÷ current Liabilities Current Assets   (2013) = Cash + Short term investments + Accounts receivable + Inventory + Prepaid Expenses = 383000 Current Assets   (2014) = Cash + Short term investments + Accounts receivable + Inventory + Prepaid Expenses = 484000 Current Liabilities (2013) = Notes Payable + Accounts Payable + Accrued Liabilities 212000 Current Liabilities (2014) = Notes Payable + Accounts Payable + Accrued Liabilities 275000 Current Ration (2013) = 383000/212000 = 1.81 Current Ration (2014) = 484000/275000 = 1.76 Accounts Receivable turnover (2013) = Net Credit Sales ÷ Average accounts receivable = 790000 ÷ (86000+90000)/2 = 8.98 Accounts Receivable turnover (2014) = 882000 ÷ (90000+104000)/2 = 9.09 Inventory turnoverratio (2013) = Cost of Goods Sold ÷ Average Inventory = 575000 = 4.11 (115000+165000)/2 Inventory turnoverratio (2014) = 640000 = 3.24 (165000+230000)/2 PROFITABILITY RATIO Profit Margin (2013) = Net Income ÷ Net Sales = 48000 ÷ 790000 = 6.07% Profit Margin (2014) = 52000 ÷ 882000 = 5.89% Asset Turnover Ratio (2013) = Net Sales ÷ AverageTotal Assets = 790000 ÷ (66000+698000)/2 = 1.16 Asset Turnover Ratio (2014) = 882000 ÷ (698000+874000)/2 = 1.12 Return On Assets (2013) = Net Income ÷ Total Assets = 48000 ÷ 698000 = 6.87% Return On Assets (2014) = 52000 ÷ 874000 = 5.95% Earnings Per Share (2013) = Net Income ÷ Average Outstanding Common Stock = 48000 ÷ 200000 = 24% Earnings Per Share (2014) = 52000 ÷ 200000 = 26% 2013 2014 % Change Current Ratio 1.81 1.76 -2.58 Accounts Receivable Ratio 8.98 9.09 1.22 Inventory Ratio 4.11 3.24 -21.17 Profit Margin 6.07% 5.89% -2.97 Asset Turnover Ratio 1.16 1.12 -3.45 Return On Assets 6.87% 5.95% -13.39 Earnings per Share 24% 26% 8.33

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