Table 8-1

Table 8-2

Q2. Ratio Calculations: Use the output of Question Q1 above to calculate the current ratio, acid test ratio, leverage ratio, and profit margin of Table 8-3. Comment on the values you obtain. Remember this question asks for your comments on the ratios.

Table 8-3

Reference BOOK: Morse, L. C., Babcock, D. L., & Murthy, M. (2014). Managing engineering and technology. Pearson. CHAPTER 8

Hytek Corporation ended 2012 with cash of $55,000, accounts receivable of $110,000, and inventory of $330,000. Property, plant, and equipment were valued at their original cost of $517,000, less accumulated depreciation of $187,000. Current liabilities other than income taxes owed (see details that follow) were $132,000, and long-term debt was $275,000. Stockholders' equity consisted of (a) $99,000 capital stock investment and (b) accumulated retained earnings, which had totaled $143,000 at the end of 2011. Net sales for 2012 were $990,000. Expenses included $550,000 as cost of goods sold, $55,000 as allowance for depreciation, $93,500 as selling expense, and $71,500 as G&A expense. Interest income and expense were $5,500 and $27,500, respectively, and income taxes for the year (unpaid at year's end) were $88,000. Dividends of $22,000 were paid. Prepare a balance sheet and an income statement reflecting these figures. For samples, use the financial statement shown in Table 8-1 (page 180) and the Income statement shown in Table 8-2, page 181. Follow similar steps.). Example Table 8-1 Balance Sheet, Sterling B. Chemicals, Inc., December 31, 2012 ASSETS Current assets Cash $150,000 Securities (al cost) 100.000 $250,000 Accounts receivable 400,000 Inventories (at lower cost or market) Raw materials and supplies 200,000 Work in progress 180,000 Finished goods 300,000 680,000 Prepaid expenses 30.000 Total current assets $1,360,000 Property, plant, and equipment 4,500,000 Less accumulated depreciation and depletion 2,400,000 Net property, plant, and equipment 2,100,000 Total Assets $3.460,000 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $100,000 Installments due within one year on debt 30,000 Federal income and other taxes 250,000 Other accrued liabilities 120.000 Total current liabilities $500,000 Long-term debt 1,000,000 Total Liabilities $1,500,000 Stockholders' equity Capital stock 500.000 Retained earnings 1.460.000 Total equity 1.960,000 Total Liabilities and Equity $3.460.000 In this example the assets include current assets, inventories, prepaid expenses, and property. It gives total assets of $3.46 million. Liabilities include accounts payable, installments due within one year, tax, and other accured liabilities. This gives $1.5 million for the total liabilities. The stockholders equity is equivalent to the company's net worth or its assets after subtracting all of its abilities. In this case, that is $3.460,000 - $1,500,000 - $1,960,000 for total equity. For legal and accounting reasons it is separated into $500,000 for capital stock and the retained earings are $1.46 million. Thus, the two halves are always in balance Example Sterling B. Chemicals had net sales of about $3.05 million for 2012. Production costs (materi- als, labor, and production overhead costs) were $2 million, and the depreciation and depletion related to 2008 production were $250,000. Selling, advertising, and shipping cost $100,000, and "general and administrative expenses ("G&A," the cost of general management, R&D, and miscellaneous activities not chargeable elsewhere) were $200,000. Subtracting the total expense of about $2.55 million from net sales leaves an operating profit of $500,000. After adjusting for interest and other nonoperating income and expense, the pretax income is found to be $540,000, and the net income (after taxes) is $280,000. The board of directors decided to return part of net income ($320,000) to the stockholders-owners as dividends and to reinvest the rest on their behalf as an addition to retained earnings. Table 8-2 Income Statement, Sterling B. Chemicals, Inc., December 31, 2012 Gross sales $3,200,000 Less returns and allowances 150,000 Net sales $3,050,000 Less expenses and costs of goods sold Cost of goods sold 2,000,000 Depreciation and depletion 250,000 Selling expenses 100,000 General and administrative expenses 200.000 2.550.000 Operating profit $500,000 Plus interest and other income 60,000 Gross income 560,000 Less interest expense 20,000 Income before taxes 540,000 Provision for income taxes 260,000 Net income 280,000 Retained carnings January 1, 2012 1.500.000 1.780,000 Dividends paid 320.00 Retained earnings December 31, 2012 1.460.00 $13,600,000 $500,000 = 2.72% $680,000 1.36% $500,000 $1,500,000 Table 8-3 Financial Ratios for Sterling B. Chemicals, Inc. Ratio Liquidity ratios Current ratio Current assets Current liabilities Acid test ratio Current assets - inventory Current liabilities Leverage ratios Debt-to-assets ratio Total debt Total assets Activity ratios Inventory turnover Cost of goods sold Inventory Asset turnover Net sales Total assets Accounts receivable turnover Net sales Accounts receivables Profitability ratio Profit margin Net income Net sales $3.460.000 -0.4346 2949 $2,000,000 $680,000 $3,050,000 $3.460,000 $3,050,000 $400.000 88 = 7.639 $280,000 $3,050.000 Hytek Corporation ended 2012 with cash of $55,000, accounts receivable of $110,000, and inventory of $330,000. Property, plant, and equipment were valued at their original cost of $517,000, less accumulated depreciation of $187,000. Current liabilities other than income taxes owed (see details that follow) were $132,000, and long-term debt was $275,000. Stockholders' equity consisted of (a) $99,000 capital stock investment and (b) accumulated retained earnings, which had totaled $143,000 at the end of 2011. Net sales for 2012 were $990,000. Expenses included $550,000 as cost of goods sold, $55,000 as allowance for depreciation, $93,500 as selling expense, and $71,500 as G&A expense. Interest income and expense were $5,500 and $27,500, respectively, and income taxes for the year (unpaid at year's end) were $88,000. Dividends of $22,000 were paid. Prepare a balance sheet and an income statement reflecting these figures. For samples, use the financial statement shown in Table 8-1 (page 180) and the Income statement shown in Table 8-2, page 181. Follow similar steps.). Example Table 8-1 Balance Sheet, Sterling B. Chemicals, Inc., December 31, 2012 ASSETS Current assets Cash $150,000 Securities (al cost) 100.000 $250,000 Accounts receivable 400,000 Inventories (at lower cost or market) Raw materials and supplies 200,000 Work in progress 180,000 Finished goods 300,000 680,000 Prepaid expenses 30.000 Total current assets $1,360,000 Property, plant, and equipment 4,500,000 Less accumulated depreciation and depletion 2,400,000 Net property, plant, and equipment 2,100,000 Total Assets $3.460,000 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $100,000 Installments due within one year on debt 30,000 Federal income and other taxes 250,000 Other accrued liabilities 120.000 Total current liabilities $500,000 Long-term debt 1,000,000 Total Liabilities $1,500,000 Stockholders' equity Capital stock 500.000 Retained earnings 1.460.000 Total equity 1.960,000 Total Liabilities and Equity $3.460.000 In this example the assets include current assets, inventories, prepaid expenses, and property. It gives total assets of $3.46 million. Liabilities include accounts payable, installments due within one year, tax, and other accured liabilities. This gives $1.5 million for the total liabilities. The stockholders equity is equivalent to the company's net worth or its assets after subtracting all of its abilities. In this case, that is $3.460,000 - $1,500,000 - $1,960,000 for total equity. For legal and accounting reasons it is separated into $500,000 for capital stock and the retained earings are $1.46 million. Thus, the two halves are always in balance Example Sterling B. Chemicals had net sales of about $3.05 million for 2012. Production costs (materi- als, labor, and production overhead costs) were $2 million, and the depreciation and depletion related to 2008 production were $250,000. Selling, advertising, and shipping cost $100,000, and "general and administrative expenses ("G&A," the cost of general management, R&D, and miscellaneous activities not chargeable elsewhere) were $200,000. Subtracting the total expense of about $2.55 million from net sales leaves an operating profit of $500,000. After adjusting for interest and other nonoperating income and expense, the pretax income is found to be $540,000, and the net income (after taxes) is $280,000. The board of directors decided to return part of net income ($320,000) to the stockholders-owners as dividends and to reinvest the rest on their behalf as an addition to retained earnings. Table 8-2 Income Statement, Sterling B. Chemicals, Inc., December 31, 2012 Gross sales $3,200,000 Less returns and allowances 150,000 Net sales $3,050,000 Less expenses and costs of goods sold Cost of goods sold 2,000,000 Depreciation and depletion 250,000 Selling expenses 100,000 General and administrative expenses 200.000 2.550.000 Operating profit $500,000 Plus interest and other income 60,000 Gross income 560,000 Less interest expense 20,000 Income before taxes 540,000 Provision for income taxes 260,000 Net income 280,000 Retained carnings January 1, 2012 1.500.000 1.780,000 Dividends paid 320.00 Retained earnings December 31, 2012 1.460.00 $13,600,000 $500,000 = 2.72% $680,000 1.36% $500,000 $1,500,000 Table 8-3 Financial Ratios for Sterling B. Chemicals, Inc. Ratio Liquidity ratios Current ratio Current assets Current liabilities Acid test ratio Current assets - inventory Current liabilities Leverage ratios Debt-to-assets ratio Total debt Total assets Activity ratios Inventory turnover Cost of goods sold Inventory Asset turnover Net sales Total assets Accounts receivable turnover Net sales Accounts receivables Profitability ratio Profit margin Net income Net sales $3.460.000 -0.4346 2949 $2,000,000 $680,000 $3,050,000 $3.460,000 $3,050,000 $400.000 88 = 7.639 $280,000 $3,050.000