Required information
Problem 12-6B Use ratios to analyze risk and profitability (LO12-3, 12-4)
[The following information applies to the questions
displayed below.]
Income statement and balance sheet data for The Athletic Attic are
provided below.
| THE ATHLETIC ATTIC | ||||||
| Income Statements | ||||||
| For the years ended December 31 | ||||||
| 2022 | 2021 | |||||
| Net sales | $ | 12,080,000 | $ | 10,600,000 | ||
| Cost of goods sold | 7,880,000 | 6,600,000 | ||||
| Gross profit | 4,200,000 | 4,000,000 | ||||
| Expenses: | ||||||
| Operating expenses | 1,720,000 | 1,670,000 | ||||
| Depreciation expense | 200,000 | 200,000 | ||||
| Interest expense | 52,000 | 52,000 | ||||
| Income tax expense | 544,000 | 470,000 | ||||
| Total expenses | 2,516,000 | 2,392,000 | ||||
| Net income | $ | 1,684,000 | $ | 1,608,000 | ||
| THE ATHLETIC ATTIC | ||||||||||||
| Balance Sheets | ||||||||||||
| December 31 | ||||||||||||
| 2022 | 2021 | 2020 | ||||||||||
| Assets | ||||||||||||
| Current assets: | ||||||||||||
| Cash | $ | 237,000 | $ | 167,000 | $ | 228,000 | ||||||
| Accounts receivable | 1,002,000 | 752,000 | 772,000 | |||||||||
| Inventory | 1,737,000 | 1,367,000 | 1,037,000 | |||||||||
| Supplies | 142,000 | 112,000 | 87,000 | |||||||||
| Long-term assets: | ||||||||||||
| Equipment | 1,580,000 | 1,580,000 | 1,580,000 | |||||||||
| Less: Accumulated depreciation | (720,000 | ) | (520,000 | ) | (320,000 | ) | ||||||
| Total assets | $ | 3,978,000 | $ | 3,458,000 | $ | 3,384,000 | ||||||
| Liabilities and Stockholders' Equity | ||||||||||||
| Current liabilities: | ||||||||||||
| Accounts payable | $ | 209,800 | $ | 142,000 | $ | 127,800 | ||||||
| Interest payable | 5,200 | 0 | 5,200 | |||||||||
| Income tax payable | 52,000 | 47,000 | 42,000 | |||||||||
| Long-term liabilities: | ||||||||||||
| Notes payable | 620,000 | 620,000 | 620,000 | |||||||||
| Stockholders' equity: | ||||||||||||
| Common stock | 720,000 | 720,000 | 720,000 | |||||||||
| Retained earnings | 2,371,000 | 1,929,000 | 1,869,000 | |||||||||
| Total liabilities and stockholders’ equity | $ | 3,978,000 | $ | 3,458,000 | $ | 3,384,000 | ||||||
Required:
1. Calculate the following risk ratios for 2021 and 2022:
(Round your answers to 1 decimal place.)
|
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| 2021 | 2022 | |
| Receivables Turnover Ratio |
13.9 times 10,600,000/ ((772,000+752000) / 2) |
13.8 times 12080000/ ((752,000+1002000)/ 2) |
| Inventory Turnover Ratio |
5.5 times 6600000/ ((1037000+1367000) / 2) |
5.1 times 7880000/ ((1737000+1367000) / 2) |
| Current Ratio |
12.7 to 1 (167000+752000+136700+112000) / (142000+47000) |
11.7 to 1 (237000+1002000+1737000+142000) / (209800+5200+52000) |
| Debt to Equity Ratio |
30.5 % (142000+47000+620000) / (720000+1929000) |
28.7 % (209800+5200+52000+620000) / (720000+2371000) |
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