Basic Financial Ratios The accounting staff of CCB Enterprises has completed the
ID: 2748586 • Letter: B
Question
Basic Financial Ratios
The accounting staff of CCB 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.
Required:
1. Calculate the following financial ratios for 2014 for CCB Enterprises:
Round items h, j, and k to the nearest whole number. Round all other answers to two decimal places. Assume a 360-day year.
CCB Enterprises Statement of Income For the Year Ended December 31, 2014 (thousands omitted) Revenue: Net sales $809,500 Other 61,460 Total revenue $870,960 Expenses: Cost of goods sold $537,500 Research and development 25,340 Selling and administrative 155,500 Interest 19,580 Total expenses $737,920 Income before income taxes $133,040 Income taxes 53,216 Net income $79,824Explanation / Answer
a) Times interest earned= EBIT/Interest charge where EBIT = Earnings Before Interest and Taxes Income before income taxes 133,040 ADD:Interest 19,580 EBIT 152,620 Times interest earned= 152620/19580 7.79 times b. Return on total assets = net income/ total assets 79824/540790 14.76% c. Return on common stockholders' equity net income/ Shareholders' equity 79824/261190 30.56% d. Debt-to-equity ratio (at December 31, 2014) Total Liabilities/Shareholders' equity 279600/261190 1.07 e. Current ratio (at December 31, 2014) Current asset/Current liabilities 144100/120,320 1.20 f. Quick (acid-test) ratio (at December 31, 2014) (Current asset- inventories)/Current liabilities 144100-65,140/120,320 0.66 g. Accounts receivable turnover ratio (Assume that all sales are on credit.) Annual Credit Sales/Accounts Receivable 809,500/47960 16.88 h. Number of days' sales in receivables Accounts receivable/(Annual Credit Sales/360) 47960/(809,500/360) 21 i. Inventory turnover ratio (Assume that all purchases are on credit.) Cost of Goods Sold/Average Inventory 8.45 Average inventory=(62080+65140)/2 63,610 or Inventory Turnover = Sales / Inventory 537500/63610 j. Number of days' sales in inventory Average Inventory/(Cost of Goods Sold)/360 42.60 63610/(537500/360) k. Number of days in cash operating cycle DIO+DSO-DPO DIO= days inventory outstanding DSO= days Sales outstanding DPO= days Payable outstanding DIO cost of sales per day 1493.1 (537500/360) Average inventory 63,610 DIO= days inventory outstanding= 43 DSO net sales per day 2,249 (809500/360) average accounts receivable 48,870 (47960+49,780)/2 DSO 22 DPO= days Payable outstanding cost of sales per day 1,493 average accounts payable (72130+71,110)/2 71,620 days payable outstanding 47.97 Number of days in cash operating cycle 16.37