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Part 1 Problem 8-40

Part 1 Problem 8-40 - Pa r t 1 P roblem 8-40 on Page 245...

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2009 2008 2007 Current Assets 44,497 36,196 36,005 Current Liabilities 25,926 17,605 16,341 1. Current Ratio = 1.72 2.06 2.20 Current Assets Current Liabilities Debt 47,161 37,033 35,801 Equity 55,826 52,759 50,873 2. Debt to equity ratio = 84.5% 70.2% 70.4% Long-Term Debt Stockholder’s Equity Net Income 4,274 3,870 2,660 Net Sales 149,245 137,580 125,814 3. Net income ratio (or profit margin 2.9% 2.8% 2.1% Net Income Net Sales Gross Profit 44,437 40,984 37,129 Net Sales 149,245 137,579 125,814 4. Grosss Profit Margin = 29.8% 29.8% 29.5% Gross Profit Net Sales Cost of Goods Sold 104,808 96,596 88,685 Inventory 25,119 22,091 21,975 5. Inventory turnover = 4.2 4.4 4.0 Cost of Goods Sold Average Inventory Part 1: Problem 8-40 on Page 245 Page 1 of 5 Pinnacle Manufacturing a) Five Ratios that are useful to assess going concern using Pinnacle’s Financial Statements:
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Part 1: Problem 8-40 on Page 245 Page 2 of 5 b) Based on these calculations, the likelihood that Pinnacle is likely to fail financially in the next 12 months is a low risk. The financial statements indicate that the company has been making a profit for the past three years by generating significant cash flows. Also, the ratios indicate that Pinnacle is not in any financial difficulty. Furthermore, the current ratio and debt to equity have worsen a little but not sufficient for Pinnacle to be alarmed.
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