Problem 13-4B
1) Current Ratio
Current Assets
Current Liabilities
6,100 + 6,900+ 15,100 + 13,500 + 2,000
=
11,500+3,300+2,600
=
=
43,600
17,400
= 2.5 : 1
2) Acid-Test Ratio
ππ’πππ π΄π π ππ‘π
πΆπ’πππππ‘ πΏππππππ‘πππ
πΆπ’πππππ‘ π΄π π ππ‘π − πΌππ£πππ‘πππππ − πππππππ πΈπ₯ππππ ππ
=
πΆπ’πππππ‘ πΏπππππππ‘πππ
43,600 − 13,500 − 2,000
=
17,400
=
=
28,100
17,400
= 1.6 : 1
3) Days’ sales uncollected
=
π΄ππππ’ππ‘π π
πππππ£ππππ
× 365
πππ‘ πΆπππππ‘ πππππ
15,100
=
× 365
315,500
= 17.5 πππ¦π
4) Inventory Turnover
=
πΆππ π‘ ππ πΊππππ ππππ
π΄π£πππππ πΌππ£πππ‘πππ¦
=
236,100
(17,400 + 13,500)/2
= 15.3
5) Days’ sales in Inventory
=
365 πππ¦π
πΌππ£πππ‘πππ¦ ππ’ππππ£ππ π
ππ‘ππ
=
365
15.3
= 23.9 πππ¦π
6) Debt-to-Equity Ratio
=
π·πππ‘
πΈππ’ππ‘π¦
=
30,000
70,100
= 0.43 βΆ 1
7) Times Interest Earned
=
πΈπππππππ ππππππ πΌππ‘ππππ π‘ & πππ₯ππ
πΌππ‘ππππ π‘
28,000 + 2,200
=
2,200
= 13.7 times
8) Profit Margin Ratio
πππ‘ ππππππ‘
× 100
πππππ
23,800
=
× 100
315,500
=
=7.5%
9) Total Asset Turnover
=
πππ‘ πππππ
π΄π£πππππ πππ‘ππ π΄π π ππ‘π
=
315,500
(94,900 + 117,500)/2
=
315,500
106,200
=3
10) Return on Total Assets
=
πππ‘ ππππππ‘
× 100
π΄π£πππππ πππ‘ππ π΄π π ππ‘π
=
23,800
× 100
(94,900 + 117,500)/2
=
23,800
× 100
106,200
= 22.4%
11) Return on Common Stockholders’ Equity
=
=
πππ‘ ππππππ‘
× 100
π΄π£πππππ πΈππ’ππ‘π¦ πβπππβππππππ ′ ππ’πππ
23,800
× 100
({35,500 + 18,800} + {35,000 + 35,100})/2
=
23,800
× 100
62,200
= 38.3%
Problem 13-5A
1)
Sr.
No.
a)
Particulars
Barco Company
Current Ratio
=
Current Assets
Current Liabilities
b)
Acid Test Ratio
ππ’πππ π΄π π ππ‘π
πΆπ’πππππ‘ πΏππππππ‘πππ
c)
Accounts Receivable Turnover
πππ‘ πΆπππππ‘ πππππ
π΄π£πππππ π΄ππππ’ππ‘π π
πππππ£ππππ
d)
Inventory Turnover
πΆππ π‘ ππ πΊππππ ππππ
π΄π£πππππ πΌππ£πππ‘πππ¦
e)
π΄π£π. π΄ππππ’ππ‘π π
πππππ£ππππ
× 365
πππ‘ πΆπππππ‘ πππππ
=
238,050
93,300
=2.6 : 1
19,500 + 46,500
61,340
34,000 + 64,600
93,300
= 1.1 βΆ 1
= 1.1 βΆ 1
770,000
(29,800 + 46,500)/2
880,200
(54,200 + 64,600)/2
= 20.2
= 14.8
585,100
(55,600 + 84,440)/2
632,500
(107,400 + 132,500)/2
= 8.4
= 5.3
365
8.4
365
5.3
= 43.5 days
= 68.9 days
Days’ sales in Inventory
Days’ sales uncollected
155,440
61,340
=2.5 : 1
365 πππ¦π
πΌππ£πππ‘πππ¦ ππ’ππππ£ππ π
ππ‘ππ
f)
Kyan Company
=
38,150
× 365
770,000
= 18.1 days
=
59,400
× 365
880,200
= 24.6 days
Interpretation –
Barco Company is better for short-term credit risk because of the following reasons –
i.
Higher Accounts Receivable Turnover – It indicates that the company has better
efficiency in collection of account receivables
ii.
Higher Inventory Turnover Ratio – A higher ratio signifies that the inventory is
quickly used and has a lower stay life on shelf indicating better liquidity
iii.
iv.
v.
Lower Days’ sales in inventory - A smaller number indicates that the company is
more efficiently and frequently selling off its inventory.
Less Days’ sales uncollected – The lower figure indicates appropriate credit
standards and adequate collection activities
Liquidity ratios – The company has similar Current Ratio and Acid-Test Ratio in
comparison to Kyan Company
2)
Sr.
No.
Particulars
Barco Company
Kyan Company
Profit Margin Ratio
162,200
× 100
770,000
210,400
× 100
880,200
= 21.1%
=23.9%
770,000
(398,000 + 445,440)/2
880,200
(382,500 + 542,450)/2
a)
πππ‘ ππππππ‘
× 100
πππππ
Total Assets Turnover
b)
πππ‘ πππππ
π΄π£πππππ πππ‘ππ π΄π π ππ‘π
Return on Total Assets
c)
=
Return on Common
=
880,200
462,475
=1.8
=1.9
162,200
× 100
421,720
210,400
× 100
462,475
= 38.5%
=45.5%
162,200
× 100
(278,300 + 303,300)/2
210,400
× 100
(299,600 + 348150)/2
πππ‘ ππππππ‘
× 100
π΄π£π. πππ‘ππ π΄π π ππ‘π
d)
770,000
421,720
Shareholders’ Equity
πππ‘ ππππππ‘
× 100
π΄π£π. πΈππ’ππ‘π¦ ππ’πππ
=
162,200
× 100
290,800
=55.8%
Price Earnings Ratio
=
e)
ππππππ‘ ππππ’π πππ π βπππ
πΈπππππππ πππ π βπππ
Dividend Yields
=16.6
=
f)
π·ππ£πππππ πππ π βπππ
ππππππ‘ ππππ’π πππ π βπππ
× 100
75
4.51
3.81
× 100
75
=5.1%
=
210,400
× 100
323,875
=65%
=
75
5.11
=14.7
3.93
× 100
75
=5.2%
Interpretation –
Kyan Company’s stock is better in terms of its investment potential because of the following
reasons –
i.
Higher rate of return – The company has better Profit Margin Ratio, Return on Total
Assets and Retun on Common Shareholders’ Equity. Thus, it creates a higher income in
proportion to its sales, assets and net worth as compared to Barco Company
ii.
Higher Total Assets Turnover – A higher ratio indicates that the company is making
effective use of its assets for generating sales.
iii.
Higher Dividends Yield – Kyan Company pays higher divided per Rupee of investment
made
iv.
Lower Price Earnings Ratio – Along with the above ratios, a lower Price Earnings Ratio
represents that the company is currently undervalued and the share price is expected
to rise in the future leading to higher returns on investment.
