Question

The following financial information is for Cullumber Company. upport CULLUMBER COMPANY Balance Sheets December 31 Assets 2017 2016 Cash Debt investments (short-term) Accounts receivable Inventory $ 72,000 $68,000 51,000 42,000 109,000 92,000 237,000 169,000 28,000 25,000 131,000 131,000 259,000 186,000 $887,000 $713,000 Prepaid expenses Land Building and equipment (net) Total assets Liabilities and Stockholders' Equity Notes payable $169,000 $109,000 69,000 50,000 Accounts payable Accrued liabilities Bonds payable, due 2017 Common stock, $10 par 41,000 41,000 252,000 170,000 209,000 209,000 147,000 134,000 $887,000 $713,000 Retained earnings Total liabilities and stockholders' equity

Answer 1

s.no		2016	2017	% change
	LIQUIDITY :
1)	Current ratio	$ 1.98 : 1	$ 1.78 : 1	{1.78-1.98 /1.98 } = (10 .10 %)
2)	Accounts receivable turnover	$ 8.67 times	$ 8.95 times	{8.95 -8.67 /8.67 } = 3.23 %
3)	Inventory turnover	$ 4.03 times	$ 3.18 times	{3.18 -4.03/ 4.03 }= (21.09 %)
		2016	2017	% change
	PROFITABILITY :
4)	Profit margin	6.84%	6.79%	{6.79 -6.84 / 6.84 }= (0.73%)
5)	Asset turnover	$ 1.17 times	$ 1.12 times	{$ 1.12 -$ 1.17 / $ 1.17 }= (4.27%)
6)	Return on assets	8.02%	7.63%	{7.63 -8.02 / 8.02 }= (4.86%)
7)	Earnings per share	$ 2.58	$ 2.92	{$ 2.92 -$ 2.58 / $ 2.58 }= 13.18 %
		2017	2018	% change
8)	Return on common stockholders	25.84%	677.77%	{677.77-25.84 / 25.84 } = 25.23 %
	equity
9)	Debt to assets ratio	59.86%	41.28%	{41.28 -59.86 /59.86 }= (31.04)
10)	Price earnings ratio	3.08 times	0.20 times	{0.20 -3.08 / 3.08 }= (93.51 % )

EXPLANATION :
1) Current ratio = total current assets / total current liabilities
here total current assets = cash + debt investments ( short term ) + accounts receivable +inventory + prepaid expense
total current assets for 2016 = 68000+42000+92000 + 169000+ 25000 = $ 396,000
total current assets for 2017 = 72000+51000 +109000 + 237000+ 28000 = $ 497,000
here total current liabilities = notes payable + accounts payable + accured liabilities
total current liabilities for 2016 = 109,000+ 50,000+ 41,000 = $ 200,000
total current liabilities for 2017 = 169,000+ 69,000+ 41,000 = $ 279,000
current ratio for 2016 = $ 396,000 / $ 200,000 = $ 1.98 : 1
current ratio for 2016 = $ 497,000 / $ 279,000 = $ 1.78 : 1
2) accounts receivable turnover = net credit sales / average accounts receivables
here all sales were on account so, all sales are treated as credit sales
average accounts receivables = beginning accounts receivables + ending accounts receivable / 2
average accounts receivables for 2016 = $ 90,000 + 92,000 / 2 = $ 91,000
average accounts receivables for 2017 = $ 92,000 + 109,000 / 2 = $ 100,500
accounts receivable turnover for 2016 = $ 789,000 / $ 91,000 = $ 8.67 times
accounts receivable turnover for 2017 = $ 899,000 / $ 100,500 = $ 8.95 times
3) inventory turnover = cost of goods sold / average inventory
average inventory = beginning inventory + ending inventory / 2
average inventory for 2016 = 117,000 + 169,000 / 2 = $ 143,000
average inventory for 2017 = 169,000 + 237,000 / 2 = $ 203,000
inventory turnover for 2016 = 576,000 / 143,000 = $ 4.03 times
inventory turnover for 2017 = 646,000 / 203,000 = $ 3.18 times
4) profit margin = net income / net sales revenue
profit margin for 2016 = $ 54,000 / $ 789,000 = 6.84 %
profit margin for 2017 = $ 61,000 / $ 899,000 = 6.79 %
5) assets turnover = net sales revenue / average total assets
average total assets = beginning total assets + ending totals assets / 2
average total assets for 2016 = 634,000 + 713,000 /2 = $ 673,500
average total assets for 2017 = 713,000 + 887,000 /2 = $ 800,000
assets turnover for 2016 = $ 789,000 / $ 673,500 =1.17 times
assets turnover for 2017 = $ 899,000 / $ 800,000 =1.12 times
6) return on assets = net income / average total assets
return on assets for 2016 = $ 54,000 / $ 673,500 = 8.02 %
return on assets for 2017 = $ 61,000 / $ 800,000 = 7.63 %
7) earning per share = (net income - preferred dividends ) / common share outstanding
here there is no preferred stock so, preferred dividend is 0
common share outstanding = common stock ( in amount ) / par value
common share outstanding for 2016 = $ 209,000/ $ 10 = 20,900 shares
common share outstanding for 2017 = $ 209,000/ $ 10 = 20,900 shares
earning per share for 2016 = ($ 54,000 - $ 0 ) / 20,900 shares = $ 2.58 per share
earning per share for 2017 = ($ 61,000 - $ 0 ) / 20,900 shares = $ 2.92 per share
8) return on common stockholders equity = net income / shareholders equity
return on common stockholders equity = $ 54,000 / 20,900 shares * $ 10 = 25.84 %
return on common stockholders equity = $ 61,000 / ( 20,900 shares *$ 10 - $ 20,000 *$ 10) = 677.77 %
9) debt to assets ratio = total debt / total assets
total debt = notes payable + accounts payable + accured liabilities + bond payables
total debt for 2017 = 169,000+ 69,000+ 41,000 + 252,000= $ 531,000
total debt for 2018 = 69,000+ 41,000 + 252,000= $ 362,000
debt to assets ratio for 2017 = $ 531,000 / $ 887,000 = 59.86 %
debt to assets ratio for 2018 = $ 362,000 / $ 877,000 = 41.28 %
10) price earning ratio = market price of common stock / earmning per share
price earning ratio for 2017 = $ 9 per share   / 2.92 per share = 3.08 times
earning per share for 2018 = net income / common share outstanding
earning per share for 2018 = $ 55,000 / (20,900 shares - 20,000 shares) = $ 61.11 per share
price earning ratio for 2018 = $ 12 per share   / $ 61.11 per share = 0.20 times