Companies, a home improvement store chain, reported the following summarized figures: DAVIS CONSULTING, INC Income Statement Years Ended December 31, 2020 and 2019 zozo Net Sales $ 460 000 $ Cost of Goods Sold 239 000 $ Gross Profit 221 000 Operating Expenses 138 000 Income From Operations 83 000 Interest Expense 13 000 Income Before Income Tax $ 70 000 $ Income Tax Bepense $ 19 000 $ Net Income 51 000 2019 422 000 212 000 210 000 136 000 74 000 16 000 58 000 21 000 37 000 Assets DAVIS CONSULTING, INC Balance Sheet December 31, 2020 and 2019 2020 2019 Liabilities 91 000 88 000 Total Current Labs Long-term Liabilities 113 000 121 000 Total Liabilities 144 000 158 000 16 000 3 000 Stockholders' Equity 364 000 370 000 Preffered Stock, 3% 217 000 176 000 Commen Stockholders Equity 581 000 546 000 Totalities an Equity 24 227 0 11700 344 00 Short-term investments Accounts Receivable, Net Merchandise inventory Prepaid Expenses Total Current Assets Property. Plant and Equipment, Nel Total Assets 92 000 145.000 581 000 7 DAVIS CONSULTING's has 50 000 common shares outstanding duting 2020 39 60 41 42 43 44 45 46 Evaluating current ratio Requirements 1. Computer Companies current May 31, 2020. 2. Did Companies current tatouave deteriorate, or hold sinady dung 20202 Computing Inventory.cross profit, and receivables rutes 3. Como tory turnover investor percentar for for 2020 4. Computer 2920 and the ON 5. What do 48 SO 51 52 53 54 59 Mean G de desto w 2020 for See Ngoyait Measuring profitability Total Assets 217 000 581 000 176 000 546 000 ered Stock, 395 Common Stockhok Total Liabities and DAVIS CONSULTING's has 50,000 common shares outstanding during 2020. Evaluating current ratio Requirements 1. Compute Companies' current ratio at May 31, 2020. 2. Did Companies' current ratio improve, deteriorate, or hold steady during 2020? Computing inventory, gross profit, and receivables ratios 3. Compute the inventory turnover, days' sales in inventory, and gross profit percentage for Companies for 2020. 4. Compute days' sales in receivables during 2020. Round dollar amounts to three decimal places. Assume all sales were on account. 5. What do these ratios say about Companies' ability to sell inventory and collect receivables? Measuring ability to pay liabilities 6. Compute the debt ratio and the debt to equity ratio at May 31, 2020 for Companies 7. is ability to pay its liabilities strong or weak? Explain your reasoning Measuring profitability 8. Compute the profit margin ratio for Companies for 2020. 9. Compute the rate of return on total assets for 2020. 10. Campute the asset turnover ratia for 2020. 11. Compute the rate of return on common stockholders' equity for 2020. 12. Are these rates of return stronger weak? Explain your reasoning Computing EPS and P/E ratio 13. Compute earnings per Share CPS for 2020 for Round to the nearest cent. 14. Compute Companies' price/earningratia for 2020. The market price per share of stack is $68.50 15. What do these results mean when evaluating Companies profitability? Test Your Knowledge Exercises Solution: Requirement 1 current ratio FORMULA FORMULA Requirement Companies, a home improvement store chain, reported the following summarized figures: DAVIS CONSULTING, INC Income Statement Years Ended December 31, 2020 and 2019 zozo Net Sales $ 460 000 $ Cost of Goods Sold 239 000 $ Gross Profit 221 000 Operating Expenses 138 000 Income From Operations 83 000 Interest Expense 13 000 Income Before Income Tax $ 70 000 $ Income Tax Bepense $ 19 000 $ Net Income 51 000 2019 422 000 212 000 210 000 136 000 74 000 16 000 58 000 21 000 37 000 Assets DAVIS CONSULTING, INC Balance Sheet December 31, 2020 and 2019 2020 2019 Liabilities 91 000 88 000 Total Current Labs Long-term Liabilities 113 000 121 000 Total Liabilities 144 000 158 000 16 000 3 000 Stockholders' Equity 364 000 370 000 Preffered Stock, 3% 217 000 176 000 Commen Stockholders Equity 581 000 546 000 Totalities an Equity 24 227 0 11700 344 00 Short-term investments Accounts Receivable, Net Merchandise inventory Prepaid Expenses Total Current Assets Property. Plant and Equipment, Nel Total Assets 92 000 145.000 581 000 7 DAVIS CONSULTING's has 50 000 common shares outstanding duting 2020 39 60 41 42 43 44 45 46 Evaluating current ratio Requirements 1. Computer Companies current May 31, 2020. 2. Did Companies current tatouave deteriorate, or hold sinady dung 20202 Computing Inventory.cross profit, and receivables rutes 3. Como tory turnover investor percentar for for 2020 4. Computer 2920 and the ON 5. What do 48 SO 51 52 53 54 59 Mean G de desto w 2020 for See Ngoyait Measuring profitability Total Assets 217 000 581 000 176 000 546 000 ered Stock, 395 Common Stockhok Total Liabities and DAVIS CONSULTING's has 50,000 common shares outstanding during 2020. Evaluating current ratio Requirements 1. Compute Companies' current ratio at May 31, 2020. 2. Did Companies' current ratio improve, deteriorate, or hold steady during 2020? Computing inventory, gross profit, and receivables ratios 3. Compute the inventory turnover, days' sales in inventory, and gross profit percentage for Companies for 2020. 4. Compute days' sales in receivables during 2020. Round dollar amounts to three decimal places. Assume all sales were on account. 5. What do these ratios say about Companies' ability to sell inventory and collect receivables? Measuring ability to pay liabilities 6. Compute the debt ratio and the debt to equity ratio at May 31, 2020 for Companies 7. is ability to pay its liabilities strong or weak? Explain your reasoning Measuring profitability 8. Compute the profit margin ratio for Companies for 2020. 9. Compute the rate of return on total assets for 2020. 10. Campute the asset turnover ratia for 2020. 11. Compute the rate of return on common stockholders' equity for 2020. 12. Are these rates of return stronger weak? Explain your reasoning Computing EPS and P/E ratio 13. Compute earnings per Share CPS for 2020 for Round to the nearest cent. 14. Compute Companies' price/earningratia for 2020. The market price per share of stack is $68.50 15. What do these results mean when evaluating Companies profitability? Test Your Knowledge Exercises Solution: Requirement 1 current ratio FORMULA FORMULA Requirement