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
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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.