Question

Selected year-end financial statements of Overton Corporation follow. (All sales were on credit; selected balance sheet amounts at December 31, 2016, were inventory, $17,400; total assets, $94,900; common stock, $35,500; and retained earnings, $18,800.) OVERTON CORPORATION Income Statement For Year Ended December 31, 2017 Sales $315,500 Cost of goods sold 236,100 Gross profit 79,400 Operating expenses 49,200 Interest expense 2.200 Income before taxes 28,000 Income taxes 4.200 Net income $ 23,800 OVERTON CORPORATION Balance Sheet December 31, 2017 Assets Cash $ 6,100 Short-term investments 6,900 Accounts receivable, net 12,100 Notes receivable (trade)* 3,000 Merchandise inventory 13,500 Prepaid expenses 2,000 Plant assets, net 73.900 Total assets $117,500 Liabilities and Equity

Answer 1

Sl. No	Ratios	Answer
1	Current Ratio	2.5 to 1
2	Acid Test Ratio	1.61 to 1
3	Days Sales Uncollected	17.47 days
4	Inventory Turnover	15.28 Times
5	Days Sales in Inventory	20.87 days
6	Debt to Equity Ratio	.68 to 1
7	Time Interest Earned	13.73 Times
8	Profit Margin Ratio	7.54 %
9	Total Asset Turnover	2.97 Times
10	Return on Total Assets	22.41 %
11	Return on common Stockholders Equity	38.26 %

Explanation;  

1. Current Ratio = 2.51

Current Ratio = Current Assets/ Current Liabilities

Current Asset = Cash + Short Term Investment + Accounts Receivable Net + Note Receivable (Trade) +Merchandise Inventory + Prepai Expenses

= $6,100 + $6,900 +$12,100 + $3,000 + $13,500 + $2,000

Current Liabilities = Accounts Payable + Accrued wages Payable + Income Tax Payable

= $11,500 + $3,300 +$2,600 = $17,400

Current Ratio = $43,600 / $17,400 = 2.51

2. Acid Test Ratio = 1.6 to 1

Acid Test Ratio = Quick Asset / Current Liabilities

Quick Asset = $6,100 +$6,900 +$12,100+$3,000=$28,100

Acid Test Ratio =$28,100 /$17,400 =1.62 to 1

3. Days Sales Uncollected = 17.47 Days

Days Sales uncollected = 17.47 days

Days Sales uncollected = Current Receivable / Net Sales * 365 days

Current Recivables = Note Receivable (trade)+ Accounts Receivable Net

= $12,100 +$ 3,000 = $15,100

Days Sales uncollected =$15,100 / $315,500 * 365 days = 17.47 days

4. Inventory Turnover = Cost of Goods Sold / Average Inventory

Average Inventory = $17,400 + $13,500 / 2 = $15,450

Inventory Turnover = $ 236,100 /$15,450 = 15.28 times

5. Days Sales Inventory = Merchandise Inventory / Cost of Goods Sold * 365 days

= $13,500 / $236,100 * 365 = 20.87 days

6. Debt to Equity Ratio = Total Liabilities /Total Equity

= 47,400 /$70,100 = .68 to 1

7. Time Interest Earned = ( Income before tax + Interest Expense ) / Interest Expense

= ($28,000 + $2,200 ) / $2,200 = $30,200 / 2,200 = 13.73 Times

8. Profit Margin Ratio = Net Income / Net Sales

= $23,800 / $315,500 = 7.54 %

9. Total Asset Turnover = Net Sales / Average Total Assets

Average Total Assets = $94,900 + $117,500 / 2 = $106,200

Total Asset Turnovers = $315,500 / $106,200 = 2.97 times

10. Return on Total Asset = Net Income / Average Total Asset

= $23,800 / $106,200 = 22.41 %

11. Return on common stockholders equity = Net Income - Preferred Dividends / Average Common Stockholders equity

= $23,800 / $62,200 = $ 38.26 %

Average Commonn stockholders equity = $ 35,500 + $18,800 + $35,000 + $35,100/ 2 = $ 62,200