ondensed balance sheet and income statement data for Sadecki Corporation are presented here an

Compute and interpret liquidity, solvency, and profitability ratios.

(LO 2, 4, 5), AP
SADECKI CORPORATION
Balance Sheets
Dec-31
Assets   2014       2013    
Cash $ 28,000 $ 20,000
Receivables (net) 70,000 62,000
Other current assets 90,000 73,000
Long-term investments 62,000 60,000
Property, plant, and equipment (net)  510,000  470,000
Total assets $760,000 $685,000
Liabilities and Stockholders’ Equity
Current liabilities $ 75,000 $ 70,000
Long-term liabilities 80,000 90,000
Common stock 330,000 300,000
Retained earnings  275,000  225,000
Total liabilities and stockholders’ equity $760,000 $685,000

SADECKI CORPORATION
Income Statements
For the Years Ended December 31
  2014       2013    
Sales revenue $750,000 $680,000
Cost of goods sold 440,000 400,000
Operating expenses (including income taxes)  240,000  220,000
Net income $ 70,000 $ 60,000

Additional information:
Net cash provided by operating activities $82,000 $56,000
Cash used for capital expenditures $45,000 $38,000
Dividends paid $20,000 $15,000
Average number of shares outstanding 33,000 30,000
Instructions
Compute these values and ratios for 2013 and 2014.
·       (a) Earnings per share.
·       (b) Working capital.
·       (c) Current ratio.
·       (d) Debt to assets ratio.
·       (e) Free cash flow.
·       (f) Based on the ratios calculated, discuss briefly the improvement or lack thereof in financial position and operating
P13-2A
The comparative statements of Osborne Company are presented here.
Compute ratios from balance sheets and income statements.
(LO 6), AP
            OSBORNE COMPANY
Income Statements
For the Years Ended December 31
   2014       2013   
Net sales $1,890,540 $1,750,500
Cost of goods sold  1,058,540  1,006,000
Gross profit 832,000 744,500
Selling and administrative expenses   500,000   479,000
Income from operations 332,000 265,500
Other expenses and losses
Interest expense    22,000    20,000
Income before income taxes 310,000 245,500
Income tax expense    92,000    73,000
Net income $  218,000 $  172,500

OSBORNE COMPANY
Balance Sheets
Dec-31
Assets    2014       2013   
Current assets
  Cash $  60,100 $ 64,200
  Debt investments (short-term) 74,000 50,000
  Accounts receivable 117,800 102,800
  Inventory   126,000  115,500
    Total current assets 377,900 332,500
Plant assets (net)   649,000  520,300
Total assets 1026900 852800 939850

Liabilities and Stockholders’ Equity

Current liabilities
  Accounts payable $ 160,000 $145,400
  Income taxes payable    43,500   42,000
    Total current liabilities    203,500   187,400
Bonds payable  220,000  200,000
    Total liabilities  423,500  387,400
Stockholders’ equity
  Common stock ($5 par) 290000 300000 58000 60000
  Retained earnings 313400 165400 118000
    Total stockholders’ equity 603400 465400 534400 59000
Total liabilities and stockholders’ equity $1,026,900$852,800
All sales were on account. Net cash provided by operating activities for 2014 was $220,000. Capita

Instructions
Compute the following ratios for 2014.
·       (a) Earnings per share.
·       (b) Return on common stockholders’ equity.
·       (c) Return on assets.
·       (d) Current ratio.
·       (e) Accounts receivable turnover.
·       (f) Average collection period.
·       (g) Inventory turnover.
·       (h) Days in inventory.
·       (i) Times interest earned.
·       (j) Asset turnover.
·       (k) Debt to assets.
·       (l) Current cash debt coverage.
·       (m) Cash debt coverage.
·       (n) Free cash flow.
 Answer P2-6A
·       (a) Earnings per share.
Earnings per share = Net Income/Average number of shares
2014 2013
Net income $ 70,000 $ 60,000
Average number of shares outstanding $ 33,000 $ 30,000
$ 2.12 $ 2.00

·       (b) Working capital.

Working Capital = Current Assets less Current Liabilities
2014 2013
Current Assets $ 188,000 $ 155,000
Current Liabilities $ 75,000 $ 70,000
$ 113,000 $ 85,000

Current Assets
Cash $ 28,000 $ 20,000
Receivables (net) $ 70,000 $ 62,000
Other current assets $ 90,000 $ 73,000
$ 188,000 $ 155,000

·       (c) Current ratio.

Current Ratio = Current Assets/Current Liabilities
2014 2013
Current Assets $ 188,000 $ 155,000
Current Liabilities $ 75,000 $ 70,000
2.5066666667 2.214285714

·       (d) Debt to assets ratio.

Debt to assets ratio = Total Debt/Total Assets
2014 2013
Total Debt $ 155,000 $ 160,000
Total Assets $ 760,000 $ 685,000
0.20 0.23

Total Debt
Current liabilities $ 75,000 $ 70,000
Long-term liabilities $ 80,000 $ 90,000
$ 155,000 $ 160,000

·       (e) Free cash flow.

Free Cash flow = Cash provided by operating activities less Cash used for capital expenditures less dividends paid
financial position and operating results from 2013 to 2014 of Sadecki Corporation.
2014 2013
Net cash provided by operating activities $ 82,000 $ 56,000
Cash used for capital expenditures $ 45,000 $ 3,800
Dividends paid $ 20,000 $ 15,000
$ 17,000 $ 37,200
Answer F
Earnings per share has improved from $ 2 in year 2013 to $ 2.12 in year 2014
Working Capital has increased from $ 85,000 to $ 113,000 in year 2014
Current ratio has improved from 2.21 to 2.51 in year 2014
Overall the financial position has improved in year 2014 as compared to year 2013

Answer P13-2A
·       (a) Earnings per share.
Earnings per share = Net Income/Average number of shares
2014
Net income $ 218,000
Average number of shares outstanding 59,000 ($ 290,000/$ 5) add ($ 300,000/$ 5)/2
$ 3.69

·       (b) Return on common stockholders’ equity.

Return on common stockholders’ equity. = Net Income/Average Common Stockholder's equity * 100
2014
Net income $ 218,000
Average Common Stockholders' equity 534,400 ($ 603,400 add $ 465,400)/2
40.79%

·       (c) Return on assets.

Return on assets. = Net Income/Total Assets * 100
2014
Net income $ 218,000
Average Total Assets $ 939,850 ($ 1,026,900 add $ 852,800)/2
23.20%

·       (d) Current ratio.

Current Ratio = Current Assets/Current Liabilities
2014
Current Assets $ 377,900
Current Liabilities $ 203,500
1.86
·       (e) Accounts receivable turnover.
Accounts receivable turnover. = Sales/Average Accounts Receivable
2014
Sales $ 1,890,540
Average Accounts Receivable $ 110,300 ($ 117,800 add $ 102,800)/2
17.14
·       (f) Average collection period.
Average collection period. = 365 days/Accounts Turnover ratio
 2014
Average collection period 21.30

·       (g) Inventory turnover.

Inventory turnover = Cost of goods sold/Average Inventory
2014
Cost of goods sold $ 1,058,540
Average Inventory $ 120,750 ($ 126000 add $ 115500)/2
8.77

·       (h) Days in inventory.

Days in inventory. = 365 days/Inventory Turnover ratio
2014
Days in inventory 41.64

·       (i) Times interest earned.

Times interest earned = Earnings before interest and taxes/Interest expense
2014
Income from operations $ 332,000
Interest expense $ 22,000
15.09

·       (j) Asset turnover.

Asset turnover = Sales/Total Assets
2014
Sales $ 1,890,540
Average Total Assets $ 939,850
2.01

·       (k) Debt to assets.

Debt to assets ratio = Total Debt/Total Assets
2014
Total Debt $ 423,500
Total Assets $ 939,850
0.45

·       (l) Current cash debt coverage.

Current cash debt coverage = Cash provided by operating activities/Average Current Liabilities
2014
Net cash provided by operating activities $ 220,000
Average Current Liabilities $ 195,450 ($ 203,500 add $ 187,400)/2
1.13

·       (m) Cash debt coverage.

Cash debt coverage = Cash and Cash equivalents/Average Current Liabilities
Cash & Cash equivalents $ 134,100
Average Current Liabilities $ 195,450
0.69

  Cash $ 60,100
  Debt investments (short-term) $ 74,000
Cash & Cash equivalents $ 134,100

·       (n) Free cash flow.

Free Cash flow = Cash provided by operating activities less Cash used for capital expenditures less dividends paid
2014
Net cash provided by operating activities $ 220,000
Cash used for capital expenditures $ 136,000
Dividends paid $ 70,000
$ 14,000
dividends paid
dividends paid