Question

Required:

(a) Using the financial statements, compute the following ratios for Sun Corporation for 2018. Show all computations. (4 marks)

1. Current ratio.

2. Acid-test ratio.

3. Accounts receivable turnover.

4. Inventory turnover.

5. Profit margin.

6. Return on assets.

7. Assets turnover.

8. Times interest earned.

9. Working capital.

10. Debt to assets ratio.

Answer a)

Answer- (a)
1. Current Ratio
=	Current Assets / Current Liablities
=	525000/225000	2.33
	Current Assets
	Cash	75000
	Short term Inventments	75000
	Accounts receivable(net)	150000
	Inventory	225000
		525000
	Current Liablities
	Accounts payable	75000
	Short term notes payable	150000
		225000
2. Acid test Ratio
=	(Cash + Short term Inventments + Accounts receivable(net)) / Current Liablities
=	150000/225000	0.67
	Cash	75000
	Short term Inventments	75000
	Accounts receivable(net)	150000
	Current Liablities
	Accounts payable	75000
	Short term notes payable	150000
		225000
3. Account Receivable Turnover
=	Net credit sales / Average account receivable
=	1500000/131250	11.43
	Net Sales		1500000
		2018	2017
	Accounts receivable(net)	150000	112500
	Average account receivable=	(150000+112500)/2
			131250
4. Inventory Turnover
=	Sales / Average Inventory
=	1500000/243750	6.15
	Net Sales		1500000
		2018	2017
	Inventory	225000	262500
	Average Inventory=	(225000+262500)/2
	=	243750
5. Profit Margin
=	Net income / Investment
=	236250/975000	0.24
	Net income	236250
	Total assets	1500000
	Less:
	Accounts payable	75000
	Short term notes payable	150000
	Bond Payable	300000
	Investment	975000
6.Return on Assets
=	Net income / Average total assets
=	236250/1687500	0.14
	Net income	236250
		2018	2017
	Total assets	1500000	1875000
	Average total assets =	(1500000+1875000)/2
	=	1687500
7. Assets turnover
=	Total Sales / [(Opening assets + closing assets)/2]
=	1500000/1687500	0.89
	Where
	Opening Assets=Assets at start of year
	Closing Assets=Assets at end of year
	Net Sales	1500000
		$	Year
	Opening Assets	1875000	2017
	Closing Assets	1500000	2018
	[(Opening assets + closing assets)/2]		1687500
8. Time Interest Earned
	It is refered as Interest coverage ratio
	Interest coverage ratio = EBIT/ Interest Expense
=	337500/67500	5	times
	Where
	EBIT means Income before income taxes
	Income before income taxes	337500
	Interest expenses	67500
9. Working Capital
=	Current Assets - Current Liablities
=	525000-225000	300000
	Current Assets
	Cash	75000
	Short term Inventments	75000
	Accounts receivable(net)	150000
	Inventory	225000
		525000
	Current Liablities
	Accounts payable	75000
	Short term notes payable	150000
		225000
10. Debt to assets ratio
=	(Short term debt + Long term debt)/ Total Assets
=	(225000+300000)/1500000	0.35
	Short term debt
	Accounts payable	75000
	Short term notes payable	150000
		225000
	Long term debt
	Bond Payable	300000
	Total assets	1500000

Required

(b) Prepare a vertical analysis of the 2018 income statement data for Sun Corporation . (2 marks)

(c) Based on the ratios calculated in (a), and the vertical analysis in (b), discuss briefly the improvement or lack thereof in financial position and operating results from 2017 to 2018 of Sun Corporation.

The financial statements of Sun Corporation appear below: Sun Corporation Comparative Balance Sheets December 31, 2017 - 18 Assets Cash Short-term investments Accounts receivable (net) Inventory Property, plant and equipment (net) 2018 S 75,000 75,000 150,000 225,000 975.000 2017 S 150,000 225,000 112,500 262,500 1,125,000 Total assets Liabilities and stockholders' equit Accounts payable Short-term notes payable Bonds payable Common stock Retained earnings Total liabilities and stockholders' equity S1500.000 S 75,000S 112,500 150,000 300,000 562,500 412.500 337,500 600,000 562,500 262.500 S1875.000 Sun Corporation Income Statement For the Year Ended December 31, 2018 Net sales Cost of goods sold Gross profit Expenses $1,500,000 937,500 562,500 Operating expenses Interest expense $157,500 67.500 Total expenses 225.000 337,500 101.250 Income before income taxes Income tax expense Net income