Explanation 1. a. Computation of Working Capital This Year Last Year Current Assets $1,520,000 $1,090,000 Less: Current Liabilities $800,000 $430,000 Working Capital $720,000 $660,000 b . C u r r e n t R a t i o = C u r r e n t A s s e t s C u r r e n t L i a b i l i t i e s T h i s Y e a r = $ 1 , 520 , 000 $ 800 , 000 = 1.90 L a s t Y e a r = $ 1 , 090 , 000 $ 430 , 000 = 2.53 c . A c i d − T e s t R a t i o = C a s h + M a r k e t a b l e S e c u r i t i e s + A c c o u n t s R e c e i v a b l e C u r r e n t L i a b i l i t i e s T h i s Y e a r = $ 70 , 000 + 0 + $ 480 , 000 $ 800 , 000 = 0.69 L a s t Y e a r = $ 150 , 000 + $ 18 , 000 + $ 300 , 000 $ 430 , 000 = 1.09 d . A v e r a g e C o l l e c t i o n P e r i o d = 365 d a y s A c c o u n t s R e c e i v a b l e T u r n o v e r R a t i o * A c c o u n t s R e c e i v a b l e T u r n o v e r R a t i o = N e t C r e d i t S a l e s A v e r a g e A c c o u n t s R e c e i v a b l e A v e r a g e A c c o u n t s R e c e i v a b l e = B e g i n n i n g A c c o u n t s R e c e i v a b l e + E n d i n g A c c o u n t s R e c e i v a b l e 2 A v e r a g e P a y a b l e P e r i o d = A v e r a g e A c c o u n t s P a y a b l e C o s t o f g o o d s S o l d X 365 d a y s * A v e r a g e A c c o u n t s P a y a b l e = B e g i n n i n g A c c o u n t s P a y a b l e + E n d i n g A c c o u n t s P a y a b l e 2 T h i s Y e a r = $ 615 , 000 $ 3 , 875 , 000 X 365 d a y s = 58 D a y s * A v e r a g e A c c o u n t s P a y a b l e = $ 430 , 000 + $ 800 , 000 2 = $ 615 , 000 L a s t Y e a r = $ 430 , 000 $ 3 , 450 , 000 X 365 d a y s = 45 D a y s * A v e r a g e A c c o u n t s P a y a b l e = $ 430 , 000 f

17th Edition

ISBN: 9781260247787

Author: Ray H. Garrison, Eric W. Noreen, Peter C. Brewer

Publisher: RENT MCG

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Question

Chapter 16, Problem 18P

To determine

Financial Ratio Analysis:

The process of evaluating the financial ratios is known as financial ratio analysis

1.

Compute the following ratios for both this year and last year.

a. Working Capital

b. Current Ratio

c. Acid-Test Ratio

d. Average Collection Period

e. Average Sale Period

f. Operating Cycle

g. Total Asset Turnover

h. Debt-to-Equity Ratio

i. Times Interest Earned Ratio

j. Equity Multiplier

2.

Prepare balance sheet and income statement in common-size format for both this year and last year.

3.

Comment on the results of your analysis in (1) and (2) above and compare Sabin Electronics’ performance to the benchmarks from the electronics industry. Do you think that the company is likely to get its loan application approved?

Expert Solution & Answer

Chapter 16 Solutions

Managerial Accounting

Ch. 16 - Prob. 1Q Ch. 16 - What is the basic purpose for examining trends in...Ch. 16 - Prob. 3Q Ch. 16 - Prob. 4Q Ch. 16 - Prob. 5Q Ch. 16 - Prob. 6Q Ch. 16 - Prob. 7Q Ch. 16 - Prob. 8Q Ch. 16 - A company seeking a line of credit at a bank was...Ch. 16 - Prob. 1F15

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