PROBLEM 1–8 The balance sheet and income statement for Chico Electronics are reproduced below (tax rate is 40%).

CHICO ELECTRONICS Balance Sheet ($ thousands)

As of December 31 Year 4 Year 5 Assets Current assets Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 683 $ 325 Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,490 3,599 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,415 2,423 Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 13 Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,603 6,360 Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,066 1,541 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 157 Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,792 $8,058 Liabilities and Shareholders’ Equity Current liabilities Notes payable to bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ 875 Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 116 Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 485 933 Estimated income tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 588 472 Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 576 586 Customer advance payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 963 Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,721 3,945 Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122 179 Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 131 Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,924 4,255 Shareholders’ equity Common stock, $1.00 par value; 1,000,000 shares authorized;

550,000 and 829,000 outstanding, respectively . . . . . . . . . . . . . . . . . . 550 829 Preferred stock, Series A 10%; $25 par value; 25,000 authorized;

20,000 and 18,000 outstanding, respectively . . . . . . . . . . . . . . . . . . . . 500 450 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450 575 Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,368 1,949 Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,868 3,803 Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,792 $8,058 CHICO ELECTRONICS Income Statement ($ thousands)
For Years Ending December 31 Year 4 Year 5 Net sales . . . . . . . . . . . . . . . . . . . . . . $7,570 $12,065 Other income, net . . . . . . . . . . . . . . . 261 345 Total revenues . . . . . . . . . . . . . . . 7,831 12,410 Cost of goods sold . . . . . . . . . . . . . . 4,850 8,048 General, administrative, and marketing expense . . . . . . . . . . . . 1,531 2,025 Interest expense . . . . . . . . . . . . . . . . 22 78 Total costs and expenses . . . . . . . 6,403 10,151 Net income before tax . . . . . . . . . . . . 1,428 2,259 Income tax . . . . . . . . . . . . . . . . . . . . 628 994 Net income . . . . . . . . . . . . . . . . . . . . $ 800 $ 1,265 Required:
Compute and interpret the following financial ratios of the company for Year 5:

a. Acid-test ratio.

b. Return on assets.

c. Return on common equity.

d. Earnings per share.

e. Gross profit margin ratio.

f. Times interest earned.
g. Days to sell inventory.
h. Long-term debt to equity ratio.
i. Total debt to equity.
j. Sales to end-of-year working capital.