2015 MANDM Corporation Balance Sheets December 31, 2015 through December 31, 2016 2016 Assets Cash $72,000 Accounts receivable 338,000 Inventories 894,000 Prepaid expenses 101,000 $65,000 232,000 813,000 96,000 132,000 95,200 142,800 61,000 $1,836,000 133,000 108,400 162,600 57,000 $1,667,000 Machinery Building Land Office equipment Total assets Liabilities and Stockholders' Equity Accounts payable Salaries payable Wages payable Accrued expenses Notes payable- Current Loan payable-Non-Current Bonds payable-Non-current Common stock/share capital Retained earnings Total liabilities and Stockholders' Equity $259,200 129,600 43,200 170,000 80,858 202,145 121,287 575,000 254,710 $1,836,000 $245,700 122,850 40,950 162,000 51,781 129,449 77,668 575,000 261,602 $1,667,000 MANDM Corporation Income Statements December 31, 2015 through December 31, 2016 2016 2015 Sales $4,240,000 $3,635,000 Cost of goods sold 3,680,000 2,980,000 Gross profit $560,000 $655,000 Operating expenses 236,320 213,550 Depreciation expense 159,000 154,500 EBIT $164,680 $286,950 Interest expense 134,000 127,000 EBT $30,680 $159,950 Taxes (40%) 12,272 63,980 Net income $18,408 $95,970 EBIT: Earnings before interest and tax; EBT; Earnings before tax 2.1 Compute the following ratios for the years 2016 and 2015; fill in the following table to one decimal place: (27 marks) # Ratios / Year MANDM 2016 MANDM 2015 Industry Financial Ratios 2.7 a) Current ratio 1 7 32.0 days 2.6 b) Quick ratio c) Inventory turnover d) Days sales outstanding (DSO) e) Total assets turnover f) Debt ratio g) Time Interest Earned (TIE) h) Return on Assets (ROA) Return on Equity (ROE) 50.00% 4 9.10% 18.20% i) Please note that Industry average ratios have been constant for the past 4 years. Calculation is based on a 365-day year. 2.2 Assess MANDM liquidity position and determine how it compares with the industry and how the liquidity position has changed over time. (8 marks) Ratio Formula Purpose or Use Liquidity Ratios 1. Current ratio Current assets Current liabilities Measures short-term debt-paying ability. Cash + Short-term 2. Acid-test (quick) ratio investments + Accounts receivable (net) Measures immediate short-term liquidity. Current liabilities 3. Accounts receivable Net credit sales turnover Average net accounts receivable Measures liquidity of accounts receivable. 4. Inventory turnover Cost of goods sold Average inventory Measures liquidity of inventory. Profitability Ratios 5. Profit margin Net income Measures net income generated by each Net sales dollar of sales. 6. Asset turnover Net sales Measures how efficiently assets are used Average total assets to generate sales. Ratio Formula Purpose or Use 7. Return on assets Net income Average total assets Measures overall profitability of assets. Net income - Preferred 8. Return on common dividends stockholders' equity Average common Measures profitability of owners' stockholders' equity investment. Net income - Preferred dividends 9. Earnings per share Measures net income earned on each (EPS) Weighted-average common shares outstanding share of common stock. Market price 10. Price-earnings (P-E) per share of stock Measures the ratio of the market price ratio Earnings per share per share to earnings per share. 11. Payout ratio Cash dividends Measures percentage of earnings Net income distributed in the form of cash dividends. Solvency Ratios 12. Debt to assets ratio Debt Measures the percentage of total Assets assets provided by creditors. Income before income taxes 13. Times interest earned and interest expense Measures ability to meet interest Interest expense payments as they come due. 2015 MANDM Corporation Balance Sheets December 31, 2015 through December 31, 2016 2016 Assets Cash $72,000 Accounts receivable 338,000 Inventories 894,000 Prepaid expenses 101,000 $65,000 232,000 813,000 96,000 132,000 95,200 142,800 61,000 $1,836,000 133,000 108,400 162,600 57,000 $1,667,000 Machinery Building Land Office equipment Total assets Liabilities and Stockholders' Equity Accounts payable Salaries payable Wages payable Accrued expenses Notes payable- Current Loan payable-Non-Current Bonds payable-Non-current Common stock/share capital Retained earnings Total liabilities and Stockholders' Equity $259,200 129,600 43,200 170,000 80,858 202,145 121,287 575,000 254,710 $1,836,000 $245,700 122,850 40,950 162,000 51,781 129,449 77,668 575,000 261,602 $1,667,000 MANDM Corporation Income Statements December 31, 2015 through December 31, 2016 2016 2015 Sales $4,240,000 $3,635,000 Cost of goods sold 3,680,000 2,980,000 Gross profit $560,000 $655,000 Operating expenses 236,320 213,550 Depreciation expense 159,000 154,500 EBIT $164,680 $286,950 Interest expense 134,000 127,000 EBT $30,680 $159,950 Taxes (40%) 12,272 63,980 Net income $18,408 $95,970 EBIT: Earnings before interest and tax; EBT; Earnings before tax 2.1 Compute the following ratios for the years 2016 and 2015; fill in the following table to one decimal place: (27 marks) # Ratios / Year MANDM 2016 MANDM 2015 Industry Financial Ratios 2.7 a) Current ratio 1 7 32.0 days 2.6 b) Quick ratio c) Inventory turnover d) Days sales outstanding (DSO) e) Total assets turnover f) Debt ratio g) Time Interest Earned (TIE) h) Return on Assets (ROA) Return on Equity (ROE) 50.00% 4 9.10% 18.20% i) Please note that Industry average ratios have been constant for the past 4 years. Calculation is based on a 365-day year. 2.2 Assess MANDM liquidity position and determine how it compares with the industry and how the liquidity position has changed over time. (8 marks) Ratio Formula Purpose or Use Liquidity Ratios 1. Current ratio Current assets Current liabilities Measures short-term debt-paying ability. Cash + Short-term 2. Acid-test (quick) ratio investments + Accounts receivable (net) Measures immediate short-term liquidity. Current liabilities 3. Accounts receivable Net credit sales turnover Average net accounts receivable Measures liquidity of accounts receivable. 4. Inventory turnover Cost of goods sold Average inventory Measures liquidity of inventory. Profitability Ratios 5. Profit margin Net income Measures net income generated by each Net sales dollar of sales. 6. Asset turnover Net sales Measures how efficiently assets are used Average total assets to generate sales. Ratio Formula Purpose or Use 7. Return on assets Net income Average total assets Measures overall profitability of assets. Net income - Preferred 8. Return on common dividends stockholders' equity Average common Measures profitability of owners' stockholders' equity investment. Net income - Preferred dividends 9. Earnings per share Measures net income earned on each (EPS) Weighted-average common shares outstanding share of common stock. Market price 10. Price-earnings (P-E) per share of stock Measures the ratio of the market price ratio Earnings per share per share to earnings per share. 11. Payout ratio Cash dividends Measures percentage of earnings Net income distributed in the form of cash dividends. Solvency Ratios 12. Debt to assets ratio Debt Measures the percentage of total Assets assets provided by creditors. Income before income taxes 13. Times interest earned and interest expense Measures ability to meet interest Interest expense payments as they come due