Do It! Review 13-3 The condensed financial statements of Ivanhoe Company for the

Question

Do It! Review 13-3

The condensed financial statements of Ivanhoe Company for the years 2016 and 2017 are presented as follows. (Amounts in thousands.)

IVANHOE COMPANY
Balance Sheets
December 31

2017

2016

$330

$360

640

570

530

460

120

160

1,620

1,550

180

180

420

380

530

510

$2,750

$2,620

$1,070

$960

480

450

1,200

1,210

$2,750

$2,620

IVANHOE COMPANY
Income Statements
For the Year Ended December 31

2017

2016

$3,870

$3,530

1,125

1,060

2,400

2,330

25

20

3,550

3,410

320

120

96

36

$ 224

$ 84

Compute the following ratios for 2017 and 2016. (Round current ratio and inventory turnover to 2 decimal places, e.g. 1.83 and all other answers to 1 decimal place, e.g. 1.8 or 12.6%.)

2017

2016

IVANHOE COMPANY
Balance Sheets
December 31

2017

2016

Current assets    Cash and cash equivalents

$330

$360

   Accounts receivable (net)

640

570

   Inventory

530

460

   Prepaid expenses

120

160

     Total current assets

1,620

1,550

Investments

180

180

Property, plant, and equipment (net)

420

380

Intangibles and other assets

530

510

     Total assets

$2,750

$2,620

Current liabilities

$1,070

$960

Long-term liabilities

480

450

Stockholders’ equity—common

1,200

1,210

     Total liabilities and stockholders’ equity

$2,750

$2,620

Explanation / Answer

Answer to Part a)

Current Ratio = Current Assets / Current Liabilities

Year 2017:
Current Ratio = 1,620 / 1,070
Current Ratio = 1.51:1

Year 2016:
Current Ratio = 1,550 / 960
Current Ratio = 1.61:1

Answer to Part b)

Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory

Year 2017:
Average Inventory = (530 + 460) / 2
Average Inventory = $495

Inventory Turnover Ratio = 1,125 / 495
Inventory Turnover Ratio = 2.27

Year 2016:
Average Inventory = (460 + 430) / 2
Average Inventory = $445

Inventory Turnover Ratio = 1,060 / 445
Inventory Turnover Ratio = 2.38

Answer to Part c)

Profit Margin = Net Income / Sales * 100

Year 2017:
Profit Margin = 224 / 3,870 * 100
Profit Margin = 5.8%

Year 2016:
Profit Margin = 84 / 3,530 * 100
Profit Margin = 2.4%

Answer to Part d)

Return on Assets = Net Income / Average Total Assets * 100

Year 2017:
Average Total Assets = (2,750 + 2,620) / 2
Average Total Assets = $2,685

Return on Assets = 224 / 2,685 * 100
Return on Assets = 8.3%

Year 2016:
Average Total Assets = (2,620 + 2,550) / 2
Average Total Assets = $2,585

Return on Assets = 84 / 2,585 * 100
Return on Assets = 3.2%

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.