Question

The financial statements of Elcamino Company appear below:

ELCAMINO COMPANY

Comparative Balance Sheet

December 31,

________________________________________________________

Assets                                                                                                        2017 2016   

Cash ..................................................................................................    $ 25,000................................................................................................ $ 40,000

Debt investments ..............................................................................       20,000 60,000

Accounts receivable (net) .................................................................       50,000 30,000

Inventory ...........................................................................................       140,000 170,000

Property, plant and equipment (net) .................................................        170,000.............................................................................................. 200,000

      Total assets ................................................................................       $405,000 $500,000

Liabilities and stockholders' equity

Accounts payable .............................................................................    $ 25,000................................................................................................ $ 30,000

Short-term notes payable .................................................................       40,000 90,000

Bonds payable ..................................................................................       75,000 160,000

Common stock ..................................................................................       160,000 145,000

Retained earnings ............................................................................          105,000..............................................................................................     75,000

      Total liabilities and stockholders' equity......................................       $405,000 $500,000

ELCAMINO COMPANY

Income Statement

For the Year Ended December 31, 2017

Net sales (all on credit) ..................................................................... $360,000

Cost of goods sold ............................................................................       .....................................................................................................   184,000

Gross profit ....................................................................................... 176,000

Expenses

      Interest expense .........................................................................       $11,000

      Selling expenses ........................................................................       30,000

      Administrative expenses ............................................................        20,000

            Total expenses ..................................................................... 61,000

Income before income taxes ............................................................ 115,000

Income tax expense .........................................................................       .....................................................................................................     35,000

Net income ........................................................................................       ..................................................................................................... $ 80,000

Additional information:

a.     Cash dividends of $50,000 were declared and paid on common stock in 2017.

b.     Weighted-average number of shares of common stock outstanding during 2017 was 50,000 shares.

c.     Market price of common stock on December 31, 2017, was $16 per share.

d.     Net cash provided by operating activities for 2017 was $70,000.

Instructions

Using the financial statements and additional information, compute the following ratios for the Elcamino Company for 2017. You Must show all computations.

                                                                                                                

    1.     Current ratio _________.

    2.     Return on common stockholders' equity _________.

    3.     Price-earnings ratio _________.

    4.     Inventory turnover _________.

    5.     Accounts receivable turnover _________.

    6.     Times interest earned _________.

    7.     Profit margin _________.

    8.     Days in inventory _________.

    9.     Payout ratio _________.

10.     Return on assets _________.

Answer 1

sol:

1) Current ratio = Current assets/Current liabilities = 235000/65000 = 3.62:1

2) Return on Common Stockholder's equity = 80000/242500 = 32.99%

3) Earning per share = 80000/50000 = 1.6 per share

Price earning ratio = MPS/EPS = 16/1.6 = 10 Times

4) Inventory turnover = Cost of goods sold/Average inventory = 184000/155000 = 1.19 Times

5) Account receivable turnover = 360000/40000 = 9 Times

6) Times interest earned = Earning before interest and tax/Interest expense = (115000+11000)/11000 = 11.45 Times

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