Exercise 14-2 Financial Ratios for Assessing Liquidity [LO14-2]

Comparative financial statements for Weller Corporation, a merchandising company, for the year ending December 31 appear below. The company did not issue any new common stock during the year. A total of 500,000 shares of common stock were outstanding. The interest rate on the bond payable was 10%, the income tax rate was 40%, and the dividend per share of common stock was $0.75 last year and $0.40 this year. The market value of the companys common stock at the end of the year was $25. All of the companys sales are on account.

Weller Corporation Comparative Balance Sheet (dollars in thousands)
	This Year			Last Year
Assets
Current assets:
Cash	$	1,210		$	1,230
Accounts receivable, net		9,400			8,300
Inventory		13,300			11,700
Prepaid expenses		630			560
Total current assets		24,540			21,790
Property and equipment:
Land		10,700			10,700
Buildings and equipment, net		41,950			33,670
Total property and equipment		52,650			44,370
Total assets	$	77,190		$	66,160
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	20,100		$	17,600
Accrued liabilities		1,070			810
Notes payable, short term		300			300
Total current liabilities		21,470			18,710
Long-term liabilities:
Bonds payable		9,000			9,000
Total liabilities		30,470			27,710
Stockholders' equity:
Common stock		500			500
Additional paid-in capital		4,000			4,000
Total paid-in capital		4,500			4,500
Retained earnings		42,220			33,950
Total stockholders' equity		46,720			38,450
Total liabilities and stockholders' equity	$	77,190		$	66,160

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	76,000		$	64,000
Cost of goods sold		43,000			42,000
Gross margin		33,000			22,000
Selling and administrative expenses:
Selling expenses		10,600			10,400
Administrative expenses		7,300			6,100
Total selling and administrative expenses		17,900			16,500
Net operating income		15,100			5,500
Interest expense		900			900
Net income before taxes		14,200			4,600
Income taxes		5,680			1,840
Net income		8,520			2,760
Dividends to common stockholders		250			250
Net income added to retained earnings		8,270			2,510
Beginning retained earnings		33,950			31,440
Ending retained earnings	$	42,220		$	33,950

Required:

Compute the following financial data and ratios for this year:

1. Working capital. (Enter your answer in thousands.)

2. Current ratio. (Round your answer to 2 decimal places.)

3. Acid-test ratio. (Round your answer to 2 decimal places.)