Basic Financial Ratios The accounting staff of CCB Enterprises has completed the

Question

Basic Financial Ratios

The accounting staff of CCB Enterprises has completed the financial statements for the 2016 calendar year. The statement of income for the current year and the comparative statements of financial position for 2016 and 2015 follow.

Required:

1. Calculate the following financial ratios for 2016 for CCB Enterprises:

Round items h, j, and k to the nearest whole number. Round all other answers to two decimal places. Assume a 360-day year.

2. Which of the following statements pertaining to ratio analysis of CCB Enterprises is true?
All of these are true.

CCB Enterprises Statement of Income For the Year Ended December 31, 2016 (thousands omitted) Revenue:      Net sales $794,620      Other 58,420          Total revenue $853,040 Expenses:      Cost of goods sold $530,320      Research and development 24,480      Selling and administrative 155,320      Interest 19,600          Total expenses $729,720 Income before income taxes $123,320 Income taxes 49,328      Net income $73,992

Explanation / Answer

1 a. Times interest earned ratio=Earnings before interest and taxes/interest expenses 2016 1) Net income 73992 2) Tax 49328 3) Interst expense 19600 4) Earnings before interst and taxes (1+2+3) 142920 5) Times interest earned ratio (4/3) 7.29 to 1 b. Return on total assets=Net income/Average total assets 2016 1) Net income 73992 2) Beginning total assets 510370 3) Ending total assets 541160 4) Average total assets [(2)+(3)]/2 525765 5) Return on investment [(1)/(4)] 14.07% c. Return on equity=Net income/Average stockholder's equity 2016 1) Net income 73992 2) Beginning stockholder's equity 217590 3) Ending stockholder's equity 259820 4) Average stockholder's equity [(2)+(3)]/2 238705 5) Return on investment [(1)/(4)] 31.00% d. Debt to equity ratio=Total liabilities/Total stockholder's equity 2016 1) Current liabilities 120720 2) Long-term liailities 160620 3) Total liabilities (1)+(2) 281340 4) Stockholder's equity 259820 5) Debt to equity ratio (3/4) 1.08 to 1 e. Current ratio=Current assets/Current liabilities 2016 1) Current assets 144180 2) Current liabilities 120720 3) Current ratio (1/2) 1.19 to 1 f. Quick ratio=(Cash+marketable securities+Accounts receivable)/Current liabilities=(25910+48190)/120720=0.61 to 1 g. Accounts receivable turnover=Net sales/Average accounts receivable 2016 a. Net sales 794620 b. Beginning accounts receivable 50300 c. Ending accounts receivable 48190 d. Average accounts receivable [(b)+©]/2 49245 e. Accounts receivable turnover 16.14 times h. Number of days sales in receivables=Average accounts receivable/Average daily sales on account 2016 a. Average accounts receivable 49245 b. Net sales 794620 c.Average daily Sales on account (b/360) 2207.278 d. Number of days sales in receivables (a/c) 22.31 days i. Inventory turnover ratio=Net sales/Average inventory 2016 a. Net sales 794620 b. Beginning inventory 62100 c. Ending inventory 64860 d. Average accounts receivable [(b)+©]/2 63480 e. Inventory turnover ratio 12.52 times j. Number of days sales in inventory=Average inventory/Average daily sales on account 2016 a. Average inventory 63480 b. Net sales 794620 c.Average daily Sales on account (b/360) 2207.278 d. Number of days sales in receivables (a/c) 28.76 days k. Number of days in cash operating cycle=Number of days sales in receivables+Number of days sales in inventory=22.31+28.76=51.07 days

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