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E15-17 Computing working capital changes
Learning Objective 4
2019 Working Capital $255,000
Data for Research Enterprises follows:
2019 2018 2017
Total Current Assets $ 490,000 $ 320,000 $ 230,000
Total Current Liabilities 235,000 160,000 115,000
Compute the dollar amount of change and the percentage of change in Research Enterprises’s
working capital each year during 2019 and 2018. What do the calculated changes indicate?
SOLUTION
E15-18 Computing key ratios
Learning Objective 4
e. 89 days
The financial statements of Valerie’s Natural Foods include the following items:
Current Year Preceding Year
Balance Sheet:
Cash $ 16,000 $ 26,000
Short-term Investments 19,000 28,000
Net Accounts Receivable 60,000 92,000
Merchandise Inventory 78,000 74,000
Prepaid Expenses 17,000 6,000
Total Current Assets 190,000 226,000
Total Current Liabilities 136,000 82,000
Income Statement:
Net Credit Sales $ 476,000
Cost of Goods Sold 312,000
Compute the following ratios for the current year:
a. Current ratio
b. Cash ratio
c. Acid-test ratio
d. Inventory turnover
e. Days’ sales in inventory
f. Days’ sales in receivables
g. Gross profit percentage
E15-18, cont.
SOLUTION
E15-19 Analyzing the ability to pay liabilities
Learning Objective 4
d. 2018: 61.9%
Big Beautiful Photo Shop has asked you to determine whether the company’s ability to pay
current liabilities and total liabilities improved or deteriorated during 2018. To answer this
question, you gather the following data:
2018 2017
Cash $ 58,000 $ 47,000
Short-term Investments 34,000 0
Net Accounts Receivable 140,000 124,000
Merchandise Inventory 217,000 272,000
Total Assets 530,000 565,000
Total Current Liabilities 288,000 205,000
Long-term Notes Payable 40,000 50,000
Income from Operations 165,000 158,000
Interest Expense 55,000 41,000
Compute the following ratios for 2018 and 2017, and evaluate the company’s ability to pay its
current liabilities and total liabilities:
a. Current ratio
b. Cash ratio
c. Acid-test ratio
d. Debt ratio
e. Debt to equity ratio
E15-19, cont.
SOLUTION
E15-20 Analyzing profitability
Learning Objective 4
1. 2019: 13.0%
Micatin, Inc.’s comparative income statement follows. The 2017 data are given as needed.
Requirements
1. Calculate the profit margin ratio for 2019 and 2018.
2. Calculate the rate of return on total assets for 2019 and 2018.
3. Calculate the asset turnover ratio for 2019 and 2018.
4. Calculate the rate of return on common stockholders’ equity for 2019 and 2018.
5. Calculate the earnings per share for 2019 and 2018.
6. Calculate the 2019 dividend payout on common stock. Assume dividends per share for
common stock are equal to $1.13 per share.
7. Did the company’s operating performance improve or deteriorate during 2019?
E15-20, cont.
SOLUTION
Requirement 1
Requirement 2
E15-20, cont.
Requirement 4
E15-21 Evaluating a stock as an investment
Learning Objective 4
Dividend Yield 2018: 1.4%
Data for Oxford State Bank follow:
2018 2017
Net Income $ 71,900 $ 64,300
Dividends—Common 22,000 22,000
Dividends—Preferred 16,800 16,800
Total Stockholders’ Equity at Year-End (includes 95,000 shares of
common stock) 770,000 610,000
Preferred Stock 200,000 200,000
Market Price per Share of Common Stock $ 16.50 $ 10.00
Evaluate the common stock of Oxford State Bank as an investment. Specifically, use the three
stock ratios to determine whether the common stock has increased or decreased in attractiveness
during the past year. Round to two decimal places.
SOLUTION
E15-21, cont.
E15-22 Using ratios to reconstruct a balance sheet
Learning Objective 4
Total Assets $2,800,000
The following data are adapted from the financial statements of Bridget’s Shops, Inc.:
Total Current Assets $ 1,216,000
Accumulated Depreciation 2,000,000
Total Liabilities 1,540,000
Preferred Stock 0
Debt Ratio 55%
Current Ratio 1.60
Prepare Bridget’s condensed balance sheet as of December 31, 2018.
SOLUTION
Problems (Group A)
P15-23A Computing trend analysis and return on common equity
Learning Objectives 2, 4
2. 2019: 16.7%
Net sales revenue, net income, and common stockholders’ equity for Eyesight Mission
Corporation, a manufacturer of contact lenses, follow for a four-year period.
2019 2018 2017 2016
Net Sales Revenue $ 766,000 $ 708,00 $ 644,000 $ 664,000
Net Income 60,000 38,000 36,000 44,000
Ending Common Stockholders’ Equity 368,000 352,000 326,000 296,000
Requirements
1. Compute trend analyses for each item for 2017–2019. Use 2016 as the base year, and round to
the nearest whole percent.
2. Compute the rate of return on common stockholders’ equity for 2017–2019, rounding to three
decimal places.
SOLUTION
Requirement 1
