Co Balaneehe Vertical Analysis Consolidated Balance Sheets U

Co. Balaneehe Vertical Analysis Consolidated Balance Sheets (USo s) 1,172 Cash and cash equivalents 1,046 41% 9,117 Property, plant, and equipment, net 6,274 1,723 8927 29% 1?% 123% -9% 9% 15,152 14,456 Common stock 225 Total shareholders equity Total Sabilities and shareholders equity of tamings (USD $ 12 Monts Ended 291 20172 16,000 16,184 15.508 4,0528893,P00 12,047 12,295 3,808 Gross margn 9% 37% 150% 1,4901,472 ???6 5,087 22% 4460 4,1453,664 operations before tax 2562 2,2671,986 1. What is the percentage of net incom . 2. What is the inventory turn ratio for 2017 and 2018? 3. What is the debt to equity ratio for 2018 4. Estimate the amount of interest expense for 2018. Assume that the average debt balance for e to sales for 2017 and 2018? This is vertical analysis the year is the beginning of the year debt balance plus the end of the year debt balance divided by two. Both the long and short term debt carry an average interest rate of 6%. Estimate the amount of interest income on short-term and long-term investments for 2018. Assume Health Co. earns 2.5% on these investments. Assume that the average investment balance is the average of the beginning of the year balance and the end of the year balance. What percent of net income was declared as dividends for 2018. (hint: set up a proportion) What is the current ratio for 2018? 5. 6. 7. 8. Consider the total costs and expenses line item at Health Co, for 2018, as indicated on the Statement of Earnings. What is the ratio of litigation charges to the total costs and expenses?

Solution

Part 1)

The percentage of net income to sales for 2017 and 2018 (based on the information provided in the question) is calculated as below:

Percentage of Net Income to Sales (2018) = Net Income for 2018/Total Sales for 2018*100 = 3,676/16,999*100 = 21.62%

Percentage of Net Income to Sales (2017) = Net Income for 2017/Total Sales for 2017*100 = 3,415/16,184*100 = 21.10%

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Part 2)

The inventory turnover ratio can be calculated with the use of following formula:

Inventory Turnover Ratio = Cost of Sales/((Opening Inventory + Closing Inventory)/2)

Using the values provided in the question in the above formula, we get,

Inventory Turnover Ratio (2018) = 4,052/((1,800 + 3,259)/2) = 1.60 times

Inventory Turnover Ratio (2017) = 3,889/((1,695 + 1,800)/2) = 2.23 times

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Part 3)

The debt to equity ratio is determined as follows:

Debt to Equity Ratio (2018) = Total Debt for 2018/Total Equity for 2018 = 15,152/18,225 = .83

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Part 4)

The amount of interest expense is calculated as below:

Average Debt = (Opening Short Term Borrowing + Opening Long Term Debt + Closing Short Term Borrowing + Total Closing Long Term Debt) = (6,274 + 4,359 + 960 + 9,723)/2 = $10,658

Interest Expense (2018) = Average Debt*Interest Rate = 10,658*6% = $639.48

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Part 5)

The amount of interest income is arrived as below:

Average Investments = (Opening Short Term Investments + Opening Long Term Investments + Closing Short Term Investments + Closing Long Term Investments)/2 = (5,178 + 7,075 + 5,027 + 5,229)/2 = $11,254.50

Interest Income (2018) = Average Investments*Interest Rate = 11,254.50*2.50% = $281.3625 or $281.36

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Part 6)

The percentage of net income declared as dividends is calculated as follows:

Percentage of Net Income Declared as Dividends (2018) = Dividends for 2018/Net Income for 2018*100 = 2,562/3,676*100 = 69.70% or 70%

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Part 7)

The value of current ratio is determined as below:

Current Ratio (2018) = Total Current Assets for 2018/Total Current Liabilities for 2018 = 15,569/2,891 = 5.39:1 or 5.39

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Part 8)

The ratio of litigation charges to total costs and expenses is arrived as follows:

Ratio of Litigation Charges to Total Cost and Expenses (2018) = Litigation Charges for 2018/Total Costs and Expenses for 2018*100 = 68/8,487 = .80%