Question

BA233 - Accounting for Managers

M6 Step 1 Learning Activity

Silver Computer Corporation

Use the financial statements below to complete a financial ratio analysis.

The ratios should be calculated on the ratio worksheet. Make sure to reference

amounts from the statements onto your ratios. Be sure that your answer

uses the correct format for that ratio: times, percentage, days, dollar amount.

Ratio Format:

Show with your answer whether the ratio is times, perentage, or dollar amount.

For example:

o

Current ratio is times, so it would be shown as a number compared to one.

(ie. 2.08 to 1 or 2.08:1 )

o

Working capital is a dollar amount, so it would be shown as currency.

(ie. $11, 190 )

o

Net margin is a percentage, so it would be shown with a % sign.

(ie. 12.7% )

Take a look at the ratio descriptions in the textbook to determine if the ratio is

times, percentage, or dollar amount.

Decimal Places on Ratios

The following are typically accepted rules for decimal places on ratios:

o

Ratios: two decimal places

o

Dollars: two decimal places (the book showed three decimal places for

earnings per share but we don't need to do that for this class)

o

Days: one decimal place

o

Percentages: one decimal place (the textbook showed percentages to two

decimal places but I think that is overkill)

o

Price-Earnings ratio: two decimal places

o

Times: two decimal places

Silver Computer Corporation

Income Statement

For the Year Ended December 31, 2016

Sales

$      47,240

Cost of goods sold

          18,920

Gross profit

          28,320

Operating expenses

Utilities

$         6,430

Wages

            8,310

Rent

            1,730

          16,470

Operating income

          11,850

Other revenue and expense

Interest revenue

$            940

Interest expense

            1,190

            2,130

Income before income taxes

            9,720

Income taxes

            3,730

Net income

$         5,990

Silver Computer Corporation

Comparative Balance Sheets

As of December 31, 2016 and 2015

Change

2016

2015

Amount

Percent

Assets

Current assets

Cash

$         3,290

$         6,230

$       (2,940)

-47.2%

Marketable securities

            1,120

            1,920

              (800)

-41.7%

Accounts receivable

            3,980

            6,790

          (2,810)

-41.4%

Merchandise inventory

            6,880

            5,110

            1,770

34.6%

Supplies

            1,270

            2,130

              (860)

-40.4%

Total current assets

          16,540

          22,180

          (5,640)

-25.4%

Plant and equipment

Equipment

          10,560

            6,450

            4,110

63.7%

Truck

          26,310

          18,310

            8,000

43.7%

Total plant and equipment

          36,870

          24,760

          12,110

48.9%

Total assets

$      53,410

$      46,940

$         6,470

13.8%

Liabilities

Current liabilities

Accounts payable

$         6,940

$         4,390

$         2,550

58.1%

Wages payable

               990

            1,510

              (520)

-34.4%

Accrued liabilities

            2,420

            1,920

               500

26.0%

Total current liabilities

          10,350

            7,820

            2,530

32.4%

Long-term liabilities

Long-term notes payable

            9,900

            6,300

            3,600

57.1%

Total liabilities

          20,250

          14,120

            6,130

43.4%

Stockholder's Equity

Common stock

            8,460

            6,610

            1,850

28.0%

Retained earnings

          29,700

          26,210

            3,490

13.3%

Total stockholder's equity

          38,160

          32,820

            5,340

16.3%

Total liabilities & equity

$      58,410

$      46,940

$      11,470

24.4%

Notes for preparation of financial ratios:

o

All of Silver Corporations sales were on account.

o

1,692 shares of common stock were outstanding at the end of 2016.

o

$2.50 of dividends per share were paid in 2016.

o

The market price per share of Silver stock was $34.00 for all of 2016.

Silver Computer Corporation
Liquidity and Solvency Financial Ratios
Liquidity Ratios
Note - Working Capital shown as an example to follow on the remaining ratios.
Working Capital			16,540			Working Capital Ratio Definition					Current Assets
			10,350		1.6:1						Current Liabilities
Current ratio						Current Ratio Definition
Quick ratio						Quick Ratio Definition
* Quick assets are cash, marketable securities, and accounts receivable
Accounts receivable turnover						Accounts Receiveable Turnover Ratio Definition
Average days to collect receivables						Average Days to Collect Receivables Ratio Definition
Inventory turnover						Inventory Turnover Ratio Definition
Average days to sell inventory						Average Days to Sell Ratio Defiinition
Operating cycle						Operating Cycle Ratio Definition
Solvency Ratios (Long-term credit risk)
Debt ratio						Debt Ratio Explanation
Interest coverage ratio						Interest Coverage Ratio Defiinition

Answer 1

As per rules I will answer the first 4 subparts of the question

1: Working capital = Current assets- Current liabilities

2016 = 16540-10350=$ 6190

2015= 22180-7820=$ 14360

2: Current ratio= Current assets/Current liabilities

2016 = 16540/10350= 1.6

2015= 22180/7820= 2.84

3: Quick ratio= (cash+ marketable securities+ accounts receivable)/ Current liabilities

2016 = (3290+1120+3980)/10350= 0.81

2015= (6230+1920+6790)/7820= 1.91

4: Accounts receivable turnover=Sales/Average AR

2016= 47240 / ((3980+6790)/2) = 8.77 times