4-27. (Analyzing financial statements) The last two years of financial statement
ID: 2809966 • Letter: 4
Question
4-27. (Analyzing financial statements) The last two years of financial statements for Blunt Industries are as follows: Blunt Industries Balance Sheets, December 31, 2015 and 2016 2015 2016 Cash Accounts receivable Inventory S 11,250 S 650 20,800 15,625 36,25059,150 S 80,600 33,800 30,000 Less: Accumulated depreciation (35,000 $(49.400) 114,400 Total current assets $ 63,125 Land 25,000 87,500 Buildings and equipment Total fixed assets Total assets 77,500 $160,825 $195.0 s 13,125 Accounts payable Short-term bank notes 21,250 34,375 $ 28,600 61,100 $ 89,700 Total current liabilities Long-term debt 555.93829,835 $70,313 39,375 30,938 $119,535 40,950 34,515 75,465 $195,000 Total liabilities Common stock Retained earnings Total common stockholders' equity Total debt and stockholders' equity $70,313 $140,625Explanation / Answer
Ratios 2,015.00 2016 Liquidity Ratios Current Ratio Current Assets/Current Liabilities 1.84 0.90 63125/34375 $80600/89700 Quick Ratio Current assets- Inventories/current liabilities 0.78 0.24 (63125-36250)/34375 (80600-59150)/89700 Average Collection Period Accounts Receivable/Sales * 365 30.42 18.98 15625/187500*365 20800/400000*365 Total assets turnover ratio Sales/Total assets 1.33 2.05 187500/140625 400000/195000 Fixed assets turnover ratio Sales/fixed assets 2.42 3.50 187500/77500 400000/114400 Inventory Turnover Cost of goods sold/Inventory 3.10 4.06 112500/36250 240000/59150 Debt Ratio Debt/Total assets 0.50 0.61 70313/140625 119535/195000 Profitability ratios Operating Profit Margin Operating Profit/Net Sales 3.28% 4.18% 6141/187500 16703/400000 ROA Net income/Total assets 4.37% 8.57% 6141/140625 16703/195000 ROE Net Income/Shareholders equity 8.73% 22.13% 6141/70313 16703/75465 Times Interest Earned EBIT/Interest 3.15 4.67 18000/5719 42500/9094 Earnings Per share 3.34 16703/5000 Price Earnings ratio 4.49 15/3.3406 Market to book ratio 0.99 15/15.093 15.093 Industry Averages 2015 2016 Current Ratio 2 1.84 0.9 Acid Test Ratio 0.8 0.78 0.24 Average collection period 37 days 30 days 19 days Inventory Turnover 2.5 3.10 4.06 Debt Ratio 58% 0.50 0.61 Times Interest earned 3.8 3.15 4.67 Operating Profit Margin 10% 3.28% 4.18% Total Assets turnover 1.14 1.33 2.05 Fixed assets turnover 1% 2.42 3.5 Operating return on assets 11.4 4.37% 8.57% Return on Equity 10% 8.73% 22.13% The company has lower current assets ratio as compared to industry average, also the ratio has declined in 2016 and is less than 1 which could lead to liquidity issue The company has lower acid assets ratio as compared to industry average, also the ratio has declined in 2016 and is less than 1 which could lead to liquidity issue The company has good collection period which is less than the industry average and in 2016 it has further reduced The company has higher inventory turnover than the industry average which is a good sign The company has increase its debt from 50% to 61% in 2016 which is slightly more than the industry average While in 2015 the company had lower times interest earned ratio but subsequently it has improved in 2016 The operating margin ratio is very low for the company as compared to the industry average The company has assets turnover ratio higher than the industry average which is a good sign The company has Fixed assets turnover ratio higher than the industry average which is a good sign The operating return on assets ratio is very low for the company as compared to the industry average but the same was little improved in 2016 In 2015 the company had lower return on equity but the same was increased to 22.13% which is higher than the industry average The companies market price is less than the book price in 2016
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