View the step-by-step solution to:

QUESTION 3. Ratio Analysis The financial statements of Skye Plumbing Inc. appear below: SKYE PLUMBING INC. Comparative Balance Sheet December 31...

QUESTION 3. Ratio Analysis 

The financial statements of Skye Plumbing Inc. appear below: 

SKYE PLUMBING INC. 

Comparative Balance Sheet 

December 31 

Assets 2014 2013 

Cash .............................................................................................. $ 25,000 $ 40,000 

Trading securities ........................................................................... 15,000 60,000 

Accounts receivable ....................................................................... 50,000 30,000 

Inventory ........................................................................................ 170,000 120,000 

Total Current Assets: ...................................................................... 260,000 250,000 

Property, plant, and equipment (net) .............................................. 160,000 200,000 

Total assets .............................................................................. $420,000 $450,000 

Liabilities and shareholders' equity 

Accounts payable ........................................................................... $ 20,000 $ 30,000 

Short-term notes payable ............................................................... 40,000 40,000 

Total Current Liabilities 60,000 70,000 

Bonds payable ............................................................................... 100,000 160,000 

Total Liabilities: 160,000 230,000 

Common shares ............................................................................. 170,000 145,000 

Retained earnings .......................................................................... 90,000 75,000 

Total liabilities and shareholders' equity ................................... $420,000 $450,000 

Page 3 of 4 

SKYE PLUMBING INC. 

Income Statement 

Year Ended December 31, 2014 

Net sales ........................................................................................ $360,000 

Cost of goods sold ......................................................................... 184,000 

Gross profit .................................................................................... 176,000 

Expenses 

Interest expense ...................................................................... $24,000 

Operating expenses ................................................................ 50,000 

Total expenses ................................................................... 74,000 

Net Income before income taxes .................................................... 102,000 

Income tax expense ....................................................................... 30,000 

Net Income after taxes ................................................................... $ 72,000 


Required: 

A) Using the financial statements , calculate the following ratios for Skye Plumbing Inc. for 2014. Show all calculations, round to nearest two decimal places. 

a. Current ratio _________ 

b. Return on shareholders equity (use Net income after taxes) _________ 

c. Debt to total assets 

e. Age of Receivables _________ 

f. Times Interest earned (use Net Income before taxes)_________ 

g. Net Income margin (use Net Income after taxes)_________ 

h. Inventory turnover _________ 

i. Return on assets (use Net Income after taxes)_________ 


B) Select 5 ratios you calculated above, and comment on which ratios performed well and which ratios were not that strong and why, what do they measure? You may want to calculate 2013 ratios to compare to 2014 ratios. 


Sign up to view the entire interaction

Top Answer

Here is the solution... View the full answer

ratios.docx

A)
a. Current ratio
Current ratio = current assets/current liabilities
=260,000/60,000
=4.33 b. Return on shareholders’ equity (use Net income after taxes)
Return on shareholders’ equity = Net...

Sign up to view the full answer

Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

-

Educational Resources
  • -

    Study Documents

    Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

    Browse Documents
  • -

    Question & Answers

    Get one-on-one homework help from our expert tutors—available online 24/7. Ask your own questions or browse existing Q&A threads. Satisfaction guaranteed!

    Ask a Question
Ask a homework question - tutors are online