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Ch 13 Homework 2

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CC13-1 Evaluating Profitability, Liquidity, and Solvency [LO 13-4, LO 13-5]

Looking back over the last few years, it is clear that Nicole Mackisey has accomplished a lot running her business, Nicoles Getaway Spa (NGS). Nicole is curious about her companys performance as she compares its financial statements.

2018 2017 2016 Balance Sheet Cash $ 7,900 $ 5,400 $ 5,000 Accounts Receivable, Net 2,600 3,100 2,400 Inventory 1,500 3,300 1,900 Prepaid Expenses 990 1,290 440 Other Current Assets 360 410 260 Total Current Assets 13,350 13,500 10,000 Property and Equipment, Net 70,000 85,000 33,000 Total Assets $ 83,350 $ 98,500 $ 43,000 Current Liabilities $ 10,400 $ 10,400 $ 11,400 Long-Term Liabilities 37,100 52,100 16,100 Total Liabilities 47,500 62,500 27,500 Common Stock 28,000 33,000 13,900 Retained Earnings 7,850 3,000 1,600 Total Stockholders Equity 35,850 36,000 15,500 Total Liabilities and Stockholders Equity $ 83,350 $ 98,500 $ 43,000 Income Statement Sales Revenue $ 83,000 $ 59,000 $ 47,000 Cost of Goods Sold 66,800 49,800 36,800 Gross Profit 16,200 9,200 10,200 Operating Expenses 4,300 2,300 7,300 Income from Operations 11,900 6,900 2,900 Interest Expense 1,180 3,280 980 Income before Income Tax Expense 10,720 3,620 1,920 Income Tax Expense 3,350 1,100 800 Net Income $ 7,370 $ 2,520 $ 1,120

Required:

1-a. Calculate the gross profit percentage, return on equity, and fixed asset turnover ratio for 2018 and 2017.

1-b. Was NGS more profitable in 2018 or 2017?

2. Calculate the current ratio for 2018 and 2017.

3-a. Calculate the debt-to-assets ratio and times interest earned ratio for 2018 and 2017.

3-b. Was NGS more solvent in 2018 or 2017?