Basic Financial Ratios The accounting staff of SST Enterprises has completed the fi nancial statements for the 2010 calendar year. The statement of income for the current year and the comparative statements of fi nancial position for 2010 and 2009 follow.

SST Enterprises Statement of Income Year Ended December 31, 2010

(thousands omitted)

Revenue:

Net sales $600,000 Other 45,000 Total revenue $645,000 Expenses:

Cost of goods sold $405,000 Research and development 18,000 Selling and administrative 120,000 Interest 15,000 Total expenses $558,000 Income before income taxes $ 87,000 Income taxes 27,000 Net income $ 60,000.

SST Enterprises Comparative Statements of Financial Position December 31, 2010 and 2009 (thousands omitted)
2010 2009 Assets Current assets:
Cash and short-term investments $ 27,000 $ 20,000 Receivables, less allowance for doubtful accounts ($1,100 in 2010 and $1,400 in 2009) 36,000 37,000 Inventories, at lower of FIFO cost or market 35,000 42,000 Prepaid items and other current assets 2,000 1,000 Total current assets $ 100,000 $ 100,000 Property, plant, and equipment:
Land $ 9,000 $ 9,000 Buildings and equipment, less accumulated depreciation ($74,000 in 2010 and $62,000 in 2009) 191,000 186,000 Total property, plant, and equipment $200,000 $ 195,000 Total assets $300,000 $295,000 Liabilities and Stockholders’ Equity Current liabilities:
Short-term loans $ 20,000 $ 15,000 Accounts payable 80,000 68,000 Salaries, wages, and other 5,000 7,000 Total current liabilities $ 105,000 $ 90,000 Long-term debt 15,000 40,000 Total liabilities $ 120,000 $ 130,000 Stockholders’ equity:
Common stock, at par $ 50,000 $ 50,000 Paid-in capital in excess of par 25,000 25,000 Total paid-in capital $ 75,000 $ 75,000 Retained earnings 105,000 90,000 Total stockholders’ equity $180,000 $ 165,000 Total liabilities and stockholders’ equity $300,000 $295,000 Required 1. Calculate the following fi nancial ratios for 2010 for SST Enterprises:

a. Times interest earned

b. Return on total assets

c. Return on common stockholders’ equity

d. Debt-to-equity ratio (at December 31, 2010)

e. Current ratio (at December 31, 2010)

f. Quick (acid-test) ratio (at December 31, 2010)
g. Accounts receivable turnover ratio (Assume that all sales are on credit.)
h. Number of days’ sales in receivables i. Inventory turnover ratio (Assume that all purchases are on credit.)
j. Number of days’ sales in inventory k. Number of days in cash operating cycle 2. Prepare a few brief comments on the overall fi nancial health of SST Enterprises.
For each comment, indicate any information that is not provided in the problem that you would need to fully evaluate the company’s fi nancial health.AppendixLO1