Question
Urrent Attempt in Progress The condensed financial statements of Crane Company for the years 2016 and...
urrent Attempt in Progress
The condensed financial statements of Crane Company for the years 2016 and 2017 are presented below.
CRANE COMPANY
Balance Sheets
December 31 (in thousands)
2017
2016
Current assets
Cash and cash equivalents
$330
$360
Accounts receivable (net)
530
460
Inventory
640
570
Prepaid expenses
130
160
Total current assets
1,630
1,550
Property, plant, and equipment (net)
410
380
Investments
70
70
Intangibles and other assets
530
510
Total assets
$2,640
$2,510
Current liabilities
$880
$850
Long-term liabilities
660
560
Stockholders’ equity—common
1,100
1,100
Total liabilities and stockholders’ equity
$2,640
$2,510
CRANE COMPANY
Income Statements
For the Year Ended December 31 (in thousands)
2017
2016
Sales revenue
$3,980
$3,640
Costs and expenses
Cost of goods sold
1,030
950
Selling & administrative expenses
2,400
2,330
Interest expense
10
20
Total costs and expenses
3,440
3,300
Income before income taxes
540
340
Income tax expense
216
136
Net income
$ 324
$ 204
Compute the following ratios for 2017 and 2016. (Round current ratio and inventory turnover to 2 decimal places, e.g 1.83 and all other answers to 1 decimal place, e.g. 1.8 or 12.6%.)
(a) Current ratio.
(b) Inventory turnover. (Inventory on December 31, 2015, was $390.)
(c) Profit margin.
(d) Return on assets. (Assets on December 31, 2015, were $2,720.)
(e) Return on common stockholders’ equity. (Equity on December 31, 2015, was $950.)
(f) Debt to assets ratio.
(g) Times interest earned.
2017
2016
Current ratio.
:1
:1
Inventory turnover.
Profit margin.
%
%
Return on assets.
%
%
Return on common stockholders’ equity.
%
%
Debt to assets ratio.
%
%
Times interest earned.
times
times
Answers
Crane company
Formula 2017 2016 1 Current ratio current assets/current liabilities 1630/880
= 1.85:1
1550/850
= 1.82:1
2 Inventory turnover ratio COGS/average inventory 1030/(640+570)/2
= 1.70 times
950/(570+340)/2
= 2.09 times
3 Profit margin Net profit/sales 324/3980
= 8.14 %
204/3640
= 5.60%
4 Return on assets PAT/Average total assets 324/(2640+2510)/2
= 12.58%
204/(2510+2720)/2
= 7.80%
5 Return on shareholders equity PAT/Average shareholders equity 324/(1100+1100)/2
= 29.45%
204/(1100+950)/2
= 19.90%
6 Debt to assets Debt/Assets (880+660)/2640
= 58.33%
(850+560)/2510
= 56.18%
7 times interest earned ratio EBIT/Interest (540+10)/10
= 5.5 times
(340+20)/20
= 18 times
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