Problem 13-5A  Basic Financial Ratios

The accounting staff of SST Enterprises has completed the financial statements for the 2014 calendar year. The statement of income for the current year and the comparative statements of financial position for 2014 and 2013 follow.

SST Enterprises Statement of Income

Year Ended December 31, 2014 (thousands omitted)

 

 

Revenue: Net sales	  $600,000
Other	45,000
Total revenue	$645,000
Expenses:	Â
Cost of goods sold	$405,000
Research and development	18,000
Selling and administrative	120,000
Interest	15,000
Total expenses	$558,000
Income before income taxes	$  87,000
Income taxes	27,000
Net income	$  60,000

 

 

 

 

 

 

 

 

 

Assets

Current assets:

 

 

SST Enterprises

Comparative Statements of Financial Position December 31, 2014 and 2013

(thousands omitted)

 

 

 

 

 

 

2014               2013

 

Cash and short-term investments Receivables, less allowance for doubtful accounts	$  27,000	Â	$  20,000
($1,100 in 2014 and $1,400 in  2013)	36,000	Â	37,000
Inventories, at lower of FIFO cost or   market	35,000	Â	42,000
Prepaid items and other current  assets	2,000	Â	1,000
Total  current assets	$100,000	Â	$100,000

 

 

 

 

 

 

 

Alternate Multi-Concept Problems                                                                                           725

2014               2013

Property, plant, and equipment:

Land Buildings and equipment, less accumulated depreciation	$    9,000	Â	$    9,000
($74,000 in 2014 and $62,000 in  2013)	191,000	Â	186,000
Total property, plant, and equipment	$200,000	Â	$195,000
Total assets	$300,000	Â	$295,000

Liabilities  and  Stockholders’ Equity

Current liabilities:

Short-term loans	$  20,000	Â	$  15,000
Accounts payable	80,000	Â	68,000
Salaries, wages, and other	5,000	Â	7,000
Total current liabilities	$105,000	Â	$  90,000
Long-term debt	15,000	Â	40,000
Total liabilities	$120,000	Â	$130,000
Stockholders’ equity: Common stock,  at par	  $  50,000	Â	  $  50,000
Paid-in capital in excess of  par	25,000	Â	25,000
Total paid-in capital	$  75,000	Â	$  75,000
Retained earnings	105,000	Â	90,000
Total stockholders’ equity	$180,000	Â	$165,000
Total liabilities and stockholders’  equity	$300,000	Â	$295,000

Required

1.        Calculate the following financial ratios for 2014 for SST Enterprises:

a.      Times interest earned

b.      Return on total assets

c.       Return on common stockholders’ equity

d.      Debt-to-equity ratio (at December 31, 2014)

e.       Current ratio (at December 31, 2014)

f.       Quick (acid-test) ratio (at December 31, 2014)

g.       Accounts receivable turnover ratio (Assume that all sales are on credit.)

h.      Number of days’ sales in receivables

i.        Inventory turnover ratio (Assume that all purchases are on credit.)

j.        Number of days’ sales in inventory

k.      Number of days in cash operating cycle

2.        Prepare a few brief comments on the overall financial health of SST Enterprises. For each comment, indicate any information that is not provided in the problem that you would need to fully evaluate the company’s financial health.

 

(CMA adapted)