Using 2013 & 2014 Balance sheet & Income statement for two companies, financial
ID: 2779133 • Letter: U
Question
Using 2013 & 2014 Balance sheet & Income statement for two companies, financial ratios for two companies:
1)Current ratio Current ratio:
= Current assets ÷ Current liabilities
PWS 2014:
= $295,640÷$330,434 = 0.89
PWS 2013: = $301,660÷$301,958 = 1
CWS 2014:
= $70,805÷$89,746 = 0.79
CWS 2013:
= $64,545÷$88,098 = 0.73
2)Quick ratio Quick ratio:
= Quick assets ÷ Current liabilities
PWS 2014:
= ($295,640-$35,589) ÷$330,434 = 0.79
PWS 2013:
= ($301,660-$37,035) ÷$301,958 = 0.88
CWS 2014:
= ($70,805-$3,905-$8,790) ÷$89,746 = 0.65
CWS 2013:
= ($64,545-$3,494-$6,673) ÷$88,098 = 0.62
3)Debt-to-equity ratio 4)Times interest earned ratio (Interest coverage ratio) 5)Inventory Turnover 6)Receivable turnover 7)Total asset turnover 8)Profit margin
Ratio
PWS
PWS
CWS
CWS
2014
2013
2014
2013
Debt to Equity Ratio =Total liabilities/Total stock holder fund
1.75
1.63
-78.30
57.76
Time Interest Earned Ratio = EBIT/Interest Expenses
3.79
4.05
0.33
0*
Inventory Turnover Ratio =Cost of goods sold/Average Inventory
0**
0**
95.84
92.32
Receivable Turnover Ratio = Net Credit sales/Average receivables
8.92
8.54
9.21
8.67
Total Asset Ratio = Net Sales/Average Asset
0.59
0.59
0.76
0.69
Profit Margin = Net income/Net Sales
6.30%
5.82%
-4.64%
-11.89
Notes About Above Answers
- * In 2013 CWS income statement show EBIT is negative. IF there is no income, NO Time interest earned ratio. Hence Time interest earned ration is 0. - ** PWS have no cost of goods sold & inventory - Average inventory = (closing inventory+ opening inventory)/2 2014 2013 Average inventory of CWS (3905+3484)/2 =3699.50 ( 3494+3503/2) = 3498.50
Average Receivables = (Closing Receivable+ opening receivables)/2 2014 2013 Average receivables of PWS (217894+232147)/2 = 225020.50 (23214+242326)/2=237236.50
Average receivables of CWS (55570+52547)/2 = 54058.50 (52547+52465)/2=52506
Average Total Assets = (Closing Asset +Opening Asset)/2 2014 2013
Average receivables of PWS (3376436+3392570)/2 = 3384503 (3392570+347561)/2=3434065.50
Average receivables of CWS (649897+663119)/2 = 656508 (663119+633843)/2=663481
9)Return on Asset (ROA)
Return on Assets Ratio = Net Income/ Total Average Assets, where total average assets = (Assets in the beginning+ assets in the end)/2
For PWS for year 2014 Net Income = 1,26,516
Total Average Assets = (3,376,436+3,392,570)/2 = 3384503 Return to Asset Ratio = 126516/3384503 = 0.037
For CWS, for year 2014,
Net Income = (27,404)
Total Average Assets = (649,897+663,119)/2 = 656508
ROA= - 0.041 10)Return on Equity (ROE) Return on Equity Ratio = Net Income/Shareholder's Equity
For PWS for year 2014,
Net Income = 1,26,516 Shareholder's Equity = 1,228,793
ROE = 126516/1228793 = 0.10
For CWS, for year 2014,
Net Income = (27,404)
Stockholder's Equity = (8,407)
ROE = - 3.25 1.Using 2013 & 2014 ratios for your company, compare your company's 2013 ratios with 2014 ratios and describe the similarities and differences.
Ratio
PWS
PWS
CWS
CWS
2014
2013
2014
2013
Debt to Equity Ratio =Total liabilities/Total stock holder fund
1.75
1.63
-78.30
57.76
Time Interest Earned Ratio = EBIT/Interest Expenses
3.79
4.05
0.33
0*
Inventory Turnover Ratio =Cost of goods sold/Average Inventory
0**
0**
95.84
92.32
Receivable Turnover Ratio = Net Credit sales/Average receivables
8.92
8.54
9.21
8.67
Total Asset Ratio = Net Sales/Average Asset
0.59
0.59
0.76
0.69
Profit Margin = Net income/Net Sales
6.30%
5.82%
-4.64%
-11.89
Explanation / Answer
Particular PWS CWS 2014 2013 2014 2013 Remarks Current Ratio 0.89 1 0.79 0.73 As the company named pws is decreasing trends and CWS has the increasing trends in Current ratio it means the CWS is started to utilize its assets in proper manner. Quick Ratio 0.79 0.88 0.65 0.62 The meaning of quick ratio means the liquid assets of the company as compare to its current liabilty and as per the data available company cws is improving the liquid ratio Debt to Equity Ratio =Total liabilities/Total stock holder fund 1.75 1.63 -78.3 57.76 The lower of the debt to equity is always better as the Pws ahas the lower equity so the debt equit of PWS is better Time Interest Earned Ratio = EBIT/Interest Expenses 3.79 4.05 0.33 0* Higher the interest ratio is always better as the meaning of the same is how much earning is earn by the company to the interest payments so in this case PWS is better than the CWS as the CWS has no earning Inventory Turnover Ratio =Cost of goods sold/Average Inventory 0** 0** 95.84 92.32 It is difficult to compare both the company as it could be possible the PWS is related to the service industry however the CWS is manufacturing concern Receivable Turnover Ratio = Net Credit sales/Average receivables 8.92 8.54 9.21 8.67 The higher the receivable turnover the is always better and both company are going on the same ways Total Asset Ratio = Net Sales/Average Asset 0.59 0.59 0.76 0.69 Both the company is consistant however the CWS is better. It is to be noted that total assets ratio should be higher in both cases these are lower Profit Margin = Net income/Net Sales 6.30% 5.82% -4.64% -11.89 The CWS company is occuring losses in business that's why the profit margin of the CWS is decling and this is not good sign for every business
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