Problem 12-92A Preparation of Ratios The financial statements for Burch Industri
ID: 2529370 • Letter: P
Question
Problem 12-92A
Preparation of Ratios
The financial statements for Burch Industries follow:
Use the following data to respond to the requirements below.
Required:
1. Prepare all the financial ratios for Burch for 2019 and 2018. In your computations, round the tax rate to three decimal places (ie: .4693 would be .469). Round your final answers to two decimal places.
2. Conceptual Connection: Is Burch's short-term liquidity adequate?
Yes
3. Conceptual Connection: Is Burch using its assets efficiently?
Yes, because receivables and inventory turnovers appear strong.
4. Conceptual Connection: Determine whether Burch is profitable.
Yes
5. Conceptual Connection: Discuss whether long-term creditors should regard Burch as a high-risk or a low-risk firm.
Low-risk
6. Perform a Dupont analysis for 2018 and 2019. Round your intermediate calculations and final answers to two decimal places.
Burch IndustriesConsolidated Income Statements
(in thousands, except per share data) Year ended December 31, 2019 2018 2017 Revenues $3,930,984 $3,405,211 $3,003,610 Costs and expenses: Cost of goods sold $2,386,993 $2,089,089 $1,850,530 Selling and administrative 922,261 761,498 664,061 Interest 25,739 30,665 27,316 Other expenses (income) 1,475 2,141 (43) Total costs and expenses $3,336,468 $2,883,393 $2,541,864 Income before income taxes $594,516 $521,818 $461,746 Income taxes 229,500 192,600 174,700 Net income $365,016 $329,218 $287,046
Explanation / Answer
(ALL VALUES IN $) Part 1 2019 2018 Short-Term Liquidity Ratios: Current ratio (Current assets/Current Liab.) 3.581 3.300 Quick ratio [(cash+account receivable)/current liab] 2.119 2.035 Cash ratio (Cash/Current Liab.) 0.644 0.618 Operating cash flow ratio (Operating cash/Current Liab. 0.420 0.357 Debt Management Ratios: Times interest earned ratio (Accrual Basis) (Earning before interest & tax/Interest Charge) 22.098 16.017 Long-term debt to equity ratio 0.009 0.058 Debt to equity ratio (Total Debt/Equity fund) 0.329 0.414 Long-term debt to total assets ratio 0.007 0.041 Debt to total assets ratio (Total Debt/Total Asset) 0.248 0.293 Asset Efficiency Ratios: Accounts receivables turnover ratio (Sales/Average Accounts Receivabke 6.222 6.094 Inventory turnover ratio (Cost of goods sold/Average inventory) 4.486 3.950 Asset turnover ratio (Revenue/Total Asset) 1.936 1.902 Profitability Ratios: Gross profit percentage [(Revenue-COGS)-Revenure} 39% 39% Operating margin percentage (EBIT/Revenue) 14% 14% Net profit margin percentage (Net Profit/Revenue) 9% 10% Return on assets ratio (EBIT/Total Assets) 26% 26% Return on equity ratio (EBIT/Equity Funds) 22% 25% Stockholder Ratios: Earnings per share (EPS)(Earnings available for Shsreholder's/No. of equity shares) 4.737 4.298 Return on common equity(Earnings available for Shsreholder's/Average No. of equity shares) 4.751 4.313 Dividend yield ratio(Dividend per share/Market Price) 1% 1% Dividend payout ratio(Dividend per share/Earnings per share) 0% 0% Total payout ratio(Dividend per share/Earnings per share) 0% 0% Stock repurchase payout 0.48 0.76 Part 2 Yes, short term liquidity ratio is in good position Part 3 Yes, because receivables and inventory turnovers appear strong. Part 4 Yes