The following information relates to SE105 through SE107 SMI

The following information relates to SE10-5 through SE10-7: SMITH & SONS, INC. Income Statement For Years Ended December 31, 2016 and 2015 2016 2015 $10,000 $ 9,500 (in millions) (,500) (5.2 5,20 Net sales.. 4,500 4,300 2,800) (2.700 1,700 1,600 (300) (250) 1,400 1,350 (420) (400 $ 980 $ 950 . . . . Gross profit Selling and administrative expenses Income from operations. . Interest expense. Income before income taxes . .. Income tax expense. Net income.. SMITH & SONS, INC Balance Sheet December 31, 2016 and 2015 2016 2015 in millions) Assets Current assets Cash and cash equivalents . Accounts receivable... $ 200 $ 400 800 650 400 250 . . . . . . .. . . . . . . . .. . . . . . . 900 500 Property, plant,& equipment (net). Other assets. . Total Assets . .. . 2,000 2,100 2,600 2,500 5,700 5,900 $10,300 $10,500

Solution

Solution:

Current ratio = Current Assets / Current liablities

2016 = $2,000 / $3,000 = 0.67

2015 = $2,100 / $2,900 = 0.72

Net Working Capital:

2016 = Current Assets - Current Liablities = $2,000 - $3,000 = ($1,000)

2015 = $2,100 - $2,900 = ($800)

From above it is very clear company\'s working capital position is very poor, it is having negative working capital in both year 2016 and 2015. Even situation become more worse in 2016 as negative value of working capital got increased as compared from 2015.

No, company\'s ability to pay its current liabilities not improved over the two years, even it become worse as current ratio of 2016 is lower than 2015. Further working capital is also negative.