The condensed financial statements of Ness Company for the years 2016 and 2017 are presented below. NESS COMPANY
Balance Sheets
December 31 (in thousands)
2017 2016
Current assets
Cash and cash equivalents $330 $360
Accounts receivable (net) 47 400
Inventory 46 390
Prepaid expenses 130 160
Total current assets 1,390 1,310
Property, plant, and equipment (net) 410 380
Investments 10 10
Intangibles and other assets 530 510
Total assets $2,340 $2,210
Current liabilities $820 $790
Long-term liabilities 480 380
Stockholders’ equity—common 1,040 1,040
Total liabilities and stockholders’ equity $2,340 $2,210
NESS COMPANY
Income Statements
For the Year Ended December 31 (in thousands)
2017 2016
Sales revenue $3,800 $3,460
Costs and expenses
Cost of goods sold 970 890
Selling & administrative expenses 2,400 2,330
Interest expense 10 20
Total costs and expenses 3,380 3,240
Income before income taxes 420 220
Income tax expense 168 88
Net income $ 252 $ 132
Compute the following ratios for 2017 and 2016. (Round current ratio and inventory turnover to 2 decimal places, e. g 1.83 and all other answers to 1 decimal place, e. g. 1.8 or 12.6%.)
(a) Current ratio.
(b) Inventory turnover. (Inventory on December 31, 2015, was $340.)
(c) Profit margin.
(d) Return on assets. (Assets on December 31, 2015, were $1,900.)
(e) Return on common stockholders’ equity. (Equity on December 31, 2015, was $900.)
(f) Debt to assets ratio.
(g) Times interest earned.

Ness Company

                                                   2017      2016

(a) Current ratio =                       1.70        1.66

(b) Inventory turnover =             4.45      2.44

(c) Profit margin =                     6.63%    3.82%

(d) Return on assets. (Assets on December 31, 2015, were $1,900.)

=                                              10.77%     5.97%

(e) Return on common stockholders’ equity. (Equity on December 31, 2015, was $900.)

=                                            24.23%    12.69%

(f) Debt to assets ratio =        0.56       0.53

(g) Times interest earned =   43X        12X

Explanation:

Condensed Financial Statements:

NESS COMPANY

Balance Sheets

December 31 (in thousands)

                                                                         2017      2016

Current assets

Cash and cash equivalents                           $330       $360

Accounts receivable (net)                                  47         400

Inventory                                                            46         390

Prepaid expenses                                            130         160

Total current assets                                      1,390       1,310

Property, plant, and equipment (net)              410        380

Investments                                                       10          10

Intangibles and other assets                         530        510

Total assets                                               $2,340   $2,210

Current liabilities                                          $820     $790

Long-term liabilities                                        480       380

Stockholders’ equity—common                  1,040     1,040

Total liabilities and stockholders’ equity $2,340  $2,210

NESS COMPANY

Income Statements

For the Year Ended December 31 (in thousands)

                                                           2017      2016

Sales revenue                                $3,800   $3,460

Costs and expenses

Cost of goods sold                             970         890

Gross profit                                   $2,830    $2,570

Selling & administrative expenses 2,400     2,330

EBIT                                                   $430     $240

Interest expense                                   10          20

Total costs and expenses              3,380     3,240

Income before income taxes            420       220

Income tax expense                          168          88

Net income                                    $ 252     $ 132

(a) Current ratio = Current assets/Current liabilities

=                             $1,390/$820 = 1.70        1.66 (1,310/$790)

(b) Inventory turnover. (Inventory on December 31, 2015, was $340.)

= Cost of goods sold/Average Inventory

=                                            $970/$218 = 4.45   2.44 ($890/$385)

Average inventory for 2016 = $365 ($390 + $340)/2

Average inventory for 2017 = $218 ($46 + $390)/2

Cost of goods sold for 2017 = $970  and 2016 = $890

(c) Profit margin = Net income/Sales

=                          6.63% ($252/$3,800 *100)  3.82% ($132/$3,460 * 100)

(d) Return on assets. (Assets on December 31, 2015, were $1,900.)

= Net income/Total assets

=                         10.77% ($252/$2,340 * 100)  5.97% ($132/$2,210 * 100)

Average assets for 2017 = $2,275 ($2,340 + $2,210)/2

Average assets for 2016 = $2,055 ($2,210 + $1,900)/2

(e) Return on common stockholders’ equity. (Equity on December 31, 2015, was $900.)

= Net income/Common stockholders' equity

=                           24.23% ($252/$1,040 * 100)  12.69% ($132/$1,040 * 100)

(f) Debt to assets ratio = Total Debt/Total Assets

=                           0.56 ($1,300/$2,340)      0.53 ($1,170/$2,210)

(g) Times interest earned = EBIT/Interest

=                                         43X ($430/$10)    12X ($240/$20)

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