EXERCISE 16-2 Financial Ratios for Assessing Liquidity LO 16-2 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 800,000 shares of common stock were outstanding. The interest rate on the bond payable was 12%, 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 company's common stock at the end of this year was $18. All of the company's sales are on account. Weller Corporation Comparative Balance Sheet (dollars in thousands) This Year Last Year Assets Current assets: Cash . $ 1,280 $ 1,560 Accounts receivable, net 12,300 9, 100 Inventory 9,700 8,200 Prepaid expenses . . . . . . . . . 1,800 2, 100 Total current assets 25,080 20,960 Property and equipment: Land .... . . . ... . 6,000 6,000 19,200 Buildings and equipment, net 19,000 25,200 25,000 Total property and equipment $50,280 $45,960 Total assets (Continued on next page)Financial Statement Analysis (Continued) This Year Last Year Liabilities and Stockholders' Equity Current liabilities: Accounts payable . ...................... $ 9,500 Accrued liabilities $ 8,300 600 700 Notes payable, short term ... . ....... 300 300 Total current liabilities 10,400 Long-term liabilities: 9,300 Bonds payable . . ..... . 5,000 5,000 Total liabilities 15,400 14,300 Stockholders' equity: Common stock..... 800 800 Additional paid-in capital 4,200 4,200 Total paid-in capital C. . 5,000 5,000 Retained earnings 29,880 26,660 Total stockholders' equity........ 34,880 31,660 Total liabilities and stockholders' equity . ..... $50,280 $45,960 Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands) This Year Last Year Sales . .. $ 79,000 $ 74,000 Cost of goods sold .... 52,000 48,000 Gross margin ... 27,000 26,000 Selling and administrative expenses: Selling expenses 8, 500 8,000 1 1,000 Administrative expenses . 12,000 19,000 Total selling and administrative expenses . 20,500 6,500 7,000 Net operating income 600 600 Interest expense . . . 5,900 6,400 Net income before taxes . . . 2,360 2,560 Income taxes .. ...... 3,540 3,840 Net income .... 320 600 Dividends to common stockholders 3,220 3,240 Net income added to retained earnings 26,660 23,420 Beginning retained earnings .............. . $ 29,880 $ 26,660 Ending retained earnings ...... ........ . . ..Chapter 16 Required: Compute the following financial data for this year: 1. Accounts receivable turnover. (Assume that all sales are on account.) 2. Average collection period. 3. Inventory turnover. 4 . Average sale period. 5. Operating cycle. 6. Total asset turnover
