Compute the ratios listed below for these two financial statements. Explain what
ID: 2480650 • Letter: C
Question
Compute the ratios listed below for these two financial statements. Explain what information the ratio provides.
Balance Sheet
Income Statement
Ratios
Current Ratio
Quick Ratio
Debt-to-Equity Ratio
Inventory Turnover Ratio
Return on Assets Ratio
Return on Equity Ratio
Period Ending Dec 30, 1995 Jan 1, 1994 Assets Current Assets: Cash And Cash Equivalents 11,761 10,399 Short Term Investment - - Net Recievables 138,595 131,921 Inventory 61,987 65,924 Other Current Assets 26,872 33,068 Total Current Assets 239,215 241,312 Long Term Investments - - Property Plant and Equipment 351,979 361,617 Goodwill 102,049 102,049 Intangible Assets 524,353 524,695 Accumulated Amortization - - Other Assets 58,560 53,801 Deferred Long Term Assets - - Total Assets 1,276,156 1,283,474 Liabilities Current Liabilities: Accounts Payable 182,877 191,082 Short/Current Long Term Debt 25,939 25,230 Other Current Liabilities - - Total Current Liabilities 208,816 216,312 Long Term Debt 437,616 467,737 Other Liabilities 216,390 259,022 Deferred Long Term Liability Charges 153,408 140,965 Minority Interest 68,606 64,179 Negative Goodwill - - Total Liabilities 1,084,836 1,148,215 Stockholders Equity - - Misc.Stock Options Warrants - - Redeemable Preferred Stock - - Preferred Stock - - Common Stock 12,939 12,919 Retained Earnings 188,869 170,439 Treasury Stock 61,254 61,254 Capital Surplus 108,942 107,681 Other Stockholder Equity 58,176 94,526 Total Stockholder Equity 191,320 135,259 Net Tangible Assets 435,082 491,485Explanation / Answer
Ratios
Dec 30, 1995
Jan 1, 1994
Current Ratio
= Current Assets/ Current Liabilities = 212,343/208,816 = 1.02
= 208,244/216,312 = 0.96
Quick Ratio
= Current Assets-inventory/ Current Liabilities = (212,343-61,987)/208,816 = 0.72
=(208,244-65,924)/216312 = 0.66
Debt-to-Equity Ratio
= Total debt/ Total equity = 463,555/191,320 = 2.42
=492,967/135,259 = 3.64
Inventory Turnover Ratio
=Sales/ Average Inventory*
= 1,641,331/61,987 = 26.48 times
= 1,614,433/65,924 = 24.49 times
Return on Assets Ratio
= net income / total assets
= 27,675/1,276,156 = 0.022 = 2.20%
= 27,217/1,283,474= 0.021 = 2.10%
Return on Equity Ratio
net income / total Equity = 27,675/191,320 = 0.145 = 14.50%
= 27,217/135,259 =0.201= 20.10%
* Average Inventory :-In this case two years data not given. So inventory for the given will be taken as avg inventory
Quick Ratio:-The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets
Current Ratio:-The current ratio is a liquidity ratio that measures a company's ability to pay short-term and long-term obligations.
It's current ratio has improved from Jan1,1994 to Dec 30,1995
Thus, a quick ratio of 0.72 in Dec 30,1995 means that a company has $0.72 of liquid assets available to cover each $1 of current liabilities.
Similarly goesfor Jan 1,1994
Debt-to-Equity Ratio:-The D/E ratio indicates how much debt a company is using to finance its assets relative to the amount of value represented in shareholders’ equity.
In both years we see that indicating that the company has been heavily taking on debt and thus has high risk. bUt in comparison to Jan 1,1994 there has been decline in the debt
Inventory Turnover Ratio:-Inventory turnover is a ratio showing how many times a company's inventory is sold and replaced over a period
Comparing Jan 1,1994 ratio it seems that there is decline in ratio and company needs to think about this fall.
Return on Assets Ratio:-ROA measures how efficiently a company can manage its assets to produce profits during a period
So in both period more or less equally managed
Return on Equity Ratio:-Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested
So in Dec 1995 Company was able to generate less profits as compared Jan 1,1994
Dec 30, 1995
Jan 1, 1994
Current Ratio
= Current Assets/ Current Liabilities = 212,343/208,816 = 1.02
= 208,244/216,312 = 0.96
Quick Ratio
= Current Assets-inventory/ Current Liabilities = (212,343-61,987)/208,816 = 0.72
=(208,244-65,924)/216312 = 0.66
Debt-to-Equity Ratio
= Total debt/ Total equity = 463,555/191,320 = 2.42
=492,967/135,259 = 3.64
Inventory Turnover Ratio
=Sales/ Average Inventory*
= 1,641,331/61,987 = 26.48 times
= 1,614,433/65,924 = 24.49 times
Return on Assets Ratio
= net income / total assets
= 27,675/1,276,156 = 0.022 = 2.20%
= 27,217/1,283,474= 0.021 = 2.10%
Return on Equity Ratio
net income / total Equity = 27,675/191,320 = 0.145 = 14.50%
= 27,217/135,259 =0.201= 20.10%
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