3 H. J. Boswell, Inc. Income Statement ($ millions, except per share data) for the Year Ended December 31, 2016 Sales Cost of goods sold Gross profit Operating expenses: Selling expense $(90.00) General and administrative expense (67.50) Depreciation and amortization expense (135.00) Total operating expenses $2,700.00 (2,025.00) $675.00 (292.50) Net operating income (EBIT, or earnings before interest and taxes) $ 382.50 Income from operating activities Interest expense (67.50) Cost of debt financing Earnings Before tax Income taxes Net income $315.00 (110.25) Cost of corporate income Taxes $204.75 Income resulting from operating and financing activities H. J. Boswell, Inc. Balance Sheets ($ millions), December 31, 2015 and 2016 Assets Liabilities and Stockholders' Equity 2015 2016 2015 2016 Cash $94.50 $ 90.00 Accounts payable $184.50 $189.00 Accounts Receivable 139.50 162.00 Accrued expenses 45.00 45.00 Inventory 229.50 378.00 Short-term notes 63.00 54.00 Other current 13.50 13.50 Total current liabilities assets $292.50 $288.00 Total current assets $ 477.00 $ 643.50 Long-term debt 720.00 771.75 Gross plant and 1,669.50 1,845.00 Total liabilities $1,012.50 $1,059.75 equipment Less accumulated (382.50) (517.50) Common stockholders' depreciation equity Net plant and $1,287.00 $1,327.50 Common stock- par value 45.00 45.00 equipment Total assets $1,764.00 $1,971.00 Paid-in capital 324.00 324.00 Retained earnings 382.50 542.25 Required: (i) How liquid is the firm? Will it be able to pay its bills as they come due? Interpret the results. (i) Current Assets Current Ratio: Current Liabilities Acid-Test (or Quick) Ratio = Current Assets - Inventory Current Liabilities [05 Ma How has the firm financed the purchase of its assets? Interpret the results. Total Liabilities Debt Ratio Total Assets [05 Marks] Times Interest Net Operating Income or EBIT Earned Interest Expense (ii) Calculate the Gross Profit Margin (GPM), Operating Profit Margin and Net Profit Margin. Interpret the results. 5 The gross profit margin (GPM) = gross profits + sales The operating profit margin = net operating income-sales The net profit margin = net profits + sales 10 [10 Marks]