Reference no: EM131594490

Q1. Company X recorded the following profit figures in 2015-2017.

	2015	2016	2017
Net sales	52,000	54,600	56,500
Cost of products sold	15,600	16,500	17,200
Gross Profit	36,400	38,100	39,300
Selling expenses	8,500	9,000	9,100
General expenses	6,000	6,200	6,400
Research and development	4,200	4,200	4,400
Operating income	17,700	18,700	19,400
Other income (expense)	550	600	700
Earnings before tax	18,250	19,300	20,100
Income tax	5,475	5,790	6,030
Net income	12,775	13,510	14,070

Required -

a) Compute the net profit margin for 2015-2017.

b) Compute the gross profit margin for 2015-2017.

c) Describe the trend in profitability and pinpoint its causes

Q2. The following is the data from Company X for 2016 and 2017.

	2016	2017
Net Sales	$800,000	$900,000
Receivables (less allowance for doubtful accounts)
Beginning of period	$45,000	$60,000
End of period	$60,000	$80,000

Required -

a) Compute the days' sales in receivables for December 31, 2016, and December 31, 2017, based on the data above.

b) Compute the accounts receivable turnover for the period ended December 31, 2016, and December 31, 2017.

c) Comment on the results from (a) and (b).

Q3.The following is the selected Balance Sheet and Income Statement for Company X. The company used LIFO inventory method.

	2017	2016
Selected Balance Sheet Data:
Merchandise inventories	$ 24,000	$ 22,000
Total current assets	41,000	39,000
Total assets	85,000	75,000
Total current liabilities	25,000	24,000
Total long-term debt	30,000	30,000
Selected Income Statement Data:
Net sales	$360,000	$320,000
Cost of merchandise sold	295,000	260,000
Net income	4,200	4,500
Net income per common share	$2.60	$2.80
Effective tax rate	40%	40%

Selected partial note with 2017 financial statements: Inventories have been reduced by $10,000 and $7,000 at December 31, 2017, and December 31, 2016, respectively, from amounts which would have been reported under the FIFO method (which approximated current cost). Had the company valued all of its inventories under the FIFO method, net income would have been approximately $5,600 in 2017 and $5,601 in 2016.

Required - Compute the following ratios for 2017 from the financial statements:

1. Days' Sales in Inventory

2. Working Capital.

3. Current Ratio

4. Debt Ratio

a) Compute the following ratios for 2017, using LIFO disclosure:

b) Compute the following ratios for 2017, using FIFO disclosure:

c) Comment on the difference in the indicated liquidity and debt between the ratios computed under LIFO and the ratios computed under FIFO.