Answer:
Carla Vista Co.
(a) Earnings per share = $3.57
(b) Return on common stockholders’ equity = 34.31%
(c) Return on assets = 19.79%
(d) Current ratio = 1.82
(e) Accounts receivable turnover = Net Sales/Average Receivable = 16.18 times
(f) Average collection period = 365 Days /Average Receivable Turnover ratio = 22.56 days
(g) Inventory turnover = Cost of goods sold/Average Inventory = 8.68 times
(h) Days in inventory = 42.05 days
(i) Times interest earned = 3.46 times
(j) Asset turnover = 1.81
(k) Debt to assets ratio = Total Debt/Total Assets = 42.31%
(l) Free cash flow = Cash from Operations - Capital Expenditures = $116,000
Explanation:
a) Data and Calculations:
CARLA VISTA CO.
Income Statements
For the Years Ended December 31
2017 2016
Net sales $1,897,540 $1,757,500
Cost of goods sold 1,065,540 1,013,000
Gross profit 832,000 744,500
Selling and administrative expenses 507,000 486,000
Income from operations 325,000 258,500
Other expenses and losses:
Interest expense 24,000 22,000
Income before income taxes 301,000 236,500
Income tax expense 94,000 75,000
Net income $ 207,000 $ 161,500
CARLA VISTA CO.
Balance Sheets
December 31
Assets 2017 2016
Current assets
Cash $ 60,100 $ 64,200
Debt investments (short-term) 74,000 50,000
Accounts receivable 124,800 109,800
Inventory 128,000 117,500
Total current assets 386,900 341,500
Plant assets (net) 659,000 530,300
Total assets $1,045,900 $871,800
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable $ 167,000 $152,400
Income taxes payable 45,500 44,000
Total current liabilities 212,500 196,400
Bonds payable 230,000 210,000
Total liabilities 442,500 406,400
Stockholders’ equity
Common stock ($5 par) 290,000 300,000
Retained earnings 313,400 165,400
Total stockholders’ equity 603,400 465,400
Total liabilities and
stockholders’ equity $1,045,900 $871,800
Net cash provided by operating activities for 2017 = $251,000
Capital expenditures = $135,000,
2017 Ratios:
(a) Earnings per share = $207,000 ($ /58,000 shares) = $3.57
(b) Return on common stockholders’ equity = $207,000/$603,400 * 100 = 34.31%
(c) Return on assets = $207,000/$1,045,900 * 100 = 19.79%
(d) Current ratio = $386,900/212,500 = 1.82
Average Receivable = ($124,800 + 109,800)/2 = $117,300
(e) Accounts receivable turnover = Net Sales/Average Receivable
= $1,897,540/$117,300 = 16.18 times
(f) Average collection period = 365 Days /Average Receivable Turnover ratio. = 365/16.18 = 22.56 days
Average Inventory = ($128,000 + 117,500)/2 = $122,750
(g) Inventory turnover = Cost of goods sold/Average Inventory = $1,065,540/122,750 = 8.68 times
(h) Days in inventory = 365/8.68 = 42.05 days
(i) Times interest earned = Earnings before interest & taxes / Tax expense = $325,000/$94,000 = 3.46 times
(j) Asset turnover = Net Sales/Assets = $1,897,540/$1,045,900 = 1.81
(k) Debt to assets ratio = Total Debt/Total Assets = $442,500/$1,045,900 * 100 = 42.31%
(l) Free cash flow = Cash from Operations - Capital Expenditures = $251,000 - $135,000 = $116,000