Question

Using the following income statement and balance sheet answer the following:

a) For the years 2017, 2018, and 2019 calculate the after-tax operating income, ROA, days in inventory, times interest earned, and quick ratio (assuming the corporate tax rate is 35%). Show your work.

b) Comment on the trends of these ratios.

Income Statement Sales Cost of Goods Sold Gross Profit Operating Expenses Continuing Operating Income Other Income EBIT Interest Expense Pretax Income Income Tax Expense Net Income 2019 2018 76,450,000 71,890,000 25,354,000 21,685,000 51,096,000 50,205,000 32,691,000 29,560,000 18,405,000 20,645,000 202,000 -116,000 18,607,000 20,529,000 934,000 726,000 17,673,000 19,803,000 16,373,000 3,263,000 1,300,000 16,540,000 2017 70,074,000 21,536,000 48,538,000 30,982,000 17,556,000 2,192,000 19,748,000 552,000 19,196,000 3,787,000 15,409,000 Balance Sheet Cash Marketable Securities Receivables Inventories Other current assets Total Current Assets PP&E Intangible assets Other assets 2019 17,824,000 472,000 13,490,000 8,765,000 2,537,000 43,088,000 17,005,000 85,134,000 12,076,000 Total Assets 157,303,000 2018 18,972,000 22,935,000 11,699,000 8,144,000 3,282,000 65,032,000 15,912,000 49,681,000 10,583,000 141,208,000 2017 13,732,000 24,644,000 10,734,000 8,053,000 3,047,000 60,210,000 15,905,000 47,393,000 9,903,000 133,411,000 20,743,000 7,004,000 Accounts Payable Short-term Debt Other current liabilities Total Current Liabilities Long-term Debt Other liabilities Total Liabilities Stockholder Equity Treasury Stocks Retained Earnings Total Stockholder Equity 26,631,000 21,603,000 3,906,000 4,684,000 0 30,537,000 26,287,000 30,675,000 22,442,000 35,931,000 22,061,000 97,143,000 70,790,000 -10,079,000 -11,781,000 -31,554,000 -28,352,000 101,793,000 110,551,000 60,160,000 70,418,000 27,747,000 12,857,000 21,657,000 62,261,000 -10,045,000 -22,684,000 103,879,000 71,150,000

Answer 1

a)		2019	2018	2017
After Tax Operating Income (EBIAT) = EBIT (1-Tax Rate	EBIT	18,607,000.00	20,529,000.00	19,748,000.00
	Tax rate @ 35%	0.35	0.35	0.35
	EBIT (1-Tax Rate)	12,094,550.00	13,343,850.00	12,836,200.00
	After Tax operating income=	12,094,550.00	13,343,850.00	12,836,200.00
e.Return on total asset (ROA)	Net Income / Total Asset
	Net Income =	1,300,000.00	16,540,000.00	15,409,000.00
	Total Assets	157,303,000.00	141,208,000.00	133,411,000.00
	Return on total asset	0.83%	11.71%	11.55%
Days in inventory =	Average Stock / Cost of goods sold per day
	Inventories	8,765,000.00	8,144,000.00	8,053,000.00
	Average Stock	8,454,500.00	8,098,500.00	8,053,000.00
	Cost of goods sold	25,354,000.00	21,685,000.00	21,536,000.00
	Days in inventory =	121.71	136.31	136.49
Time interest earned =	EBIT / Interest expenses
	EBIT	18,607,000.00	20,529,000.00	19,748,000.00
	Interest Expenses	934,000.00	726,000.00	552,000.00
	Time interest earned =	19.92	28.28	35.78
Quick Ratio = (Current Asset - Inventories) / (Current Liabilities-Bank OD)
	Current Assets	43,088,000.00	65,032,000.00	60,210,000.00
	Inventories	8,765,000.00	8,144,000.00	8,053,000.00
	Current Assets - Inventories	34,323,000.00	56,888,000.00	52,157,000.00
	Current Liabilities	30,537,000.00	26,287,000.00	27,747,000.00
	Quick Ratio =	1.12	2.16	1.88

b). When we analyse three years above ratio, we can found out that 2018 is the best performance of the year.