Assignments

Problems

Note: Refer to the Chapter 6 Homework Spreadsheets below to solve problems 6-1 through 6-3.

Extreme Edge, Inc.

Income Statements

For the Years Ended December 31, 2017, 2016 and 2015

($ in thousands)

2017 2016 2015

Sales revenue	$1,340	$1,200	$1,000
Less: Cost of goods sold	685	660	600
Gross profit	655	540	400
Operating expenses:
Depreciation expense	200	120	100
Amortization expense	5	5	5
Other operating expenses	368 573	345 470	255 360
Income from operations	82	70	40
Interest (financing) expense	32	10	10
Pretax income	50	60	30
Income tax expense (40%)	20	24	12
Net income	$ 30	$ 36	$ 18
Earnings per share	$0.60	$0.72	$0.45

Extreme Edge, Inc.

Balance Sheets

December 31, 2017, 2016 and 2015

($ in thousands)

2017 2016 2015

Assets
Cash	$ 65	$ 90	$ 30
Accounts receivable, net	150	80	90
Inventory	298	228	170
Total current assets	513	398	290
Property, Plant and Equipment:
Equipment (at cost)	800	600	500
Less: accumulated depreciation	(420)	(220)	(100)
Equipment, net of accumulated depreciation	380	380	400
Intangible Assets:
Customer database (at cost)	25	25	25
Less: accumulated amortization	(15)	(10)	(5)
Customer database, net of accumulated amortization	10	15	20
Total Assets	$903	$793	$710
Liabilities
Accounts payable	$ 44	$145	$160
Accrued liabilities	6	20	32
Total current liabilities	50	165	192
Long-term Liabilities:
Notes payable	300	100	100
Total Liabilities	350	265	292
Shareholders' Equity
Common stock, $1 par	50	50	40
Additional paid-in-capital on common stock	430	430	360
Total contributed capital	480	480	400
Retained earnings	73	48	18
Total Shareholders' Equity	553	528	418
Total Liabilities and Shareholders' Equity	$903	$793	$710

Problem 6-1

Required: Refer to the Chapter6 Homework Spreadsheets above. Compute the 2017 vertical common-size financial statements for Extreme Edge.

Extreme Edge, Inc.

Vertical Common-Size Income Statements

For the Years Ended December 31, 2017, 2016 and 2015

2017 2016 2015

Sales revenue		100.0%	100.0%
Less: Cost of goods sold		55.0%	60.0%
Gross profit		45.0%	40.0%
Operating expenses:
Depreciation expense		10.0%	10.0%
Amortization expense		0.4%	0.5%
Other operating expenses		28.8%	25.5%
Income from operations		5.8%	4.0%
Interest (financing) expense		0.8%	1.0%
Pretax income		5.0%	3.0%
Income tax expense (40%)		2.0%	1.2%
Net income		3.0%	1.8%

Extreme Edge, Inc.

Vertical Common-Size Balance Sheets

December 31, 2017, 2016 and 2015

2016 2015 2014

Assets
Cash		11.3%	4.2%
Accounts receivable, net		10.1%	12.7%
Inventory		28.8%	23.9%
Total current assets		50.2%	40.8%
Property, Plant and Equipment:
Equipment (at cost)		75.7%	70.4%
Less: accumulated depreciation		(27.7)%	(14.1)%
Equipment, net of accumulated depreciation		47.9%	56.3%
Intangible Assets:
Customer database (at cost)		3.2%	3.5%
Less: accumulated amortization		(1.3)%	(0.7)%
Customer database, net of accumulated amortization		1.9%	2.8%
Total Assets		100.0%	100.0%
Liabilities
Accounts payable		18.3%	22.5%
Accrued liabilities		2.5%	4.5%
Total current liabilities		20.8%	27.0%
Long-term Liabilities:
Notes payable		12.6%	14.1%
Total Liabilities		33.4%	41.1%
Shareholders' Equity
Common stock, $1 par		6.3%	5.6%
Additional paid-in-capital on common stock		54.2%	50.7%
Total contributed capital		60.5%	56.3%
Retained earnings		6.1%	2.5%
Total Shareholders' Equity		66.6%	58.9%
Total Liabilities and Shareholders' Equity		100.0%	100.0%

Problem 6-2

Required: Refer to the Chapter 6 Homework Spreadsheets above. Compute the 2017 horizontal common-size income financial statements for Extreme Edge.

Extreme Edge, Inc.

Horizontal Common-Size Income Statements

For the Years Ended December 31, 2017, 2016 and 2015

2017 2016 2015

Sales revenue		120.0%	100.0%
Less: Cost of goods sold		110.0%	100.0%
Gross profit		135.0%	100.0%
Operating expenses:
Depreciation expense		120.0%	100.0%
Amortization expense		100.0%	100.0%
Other operating expenses		135.3%	100.0%
Income from operations		175.0%	100.0%
Interest (financing) expense		100.0%	100.0%
Pretax income		200.0%	100.0%
Income tax expense (40%)		200.0%	100.0%
Net income		200.0%	100.0%

Extreme Edge, Inc.

Horizontal Common-Size Balance Sheets

December 31, 2017, 2016 and 2015

2017 2016 2015

Assets
Cash		300.0%	100.0%
Accounts receivable, net		88.9%	100.0%
Inventory		134.1%	100.0%
Total current assets		137.2%	100.0%
Property, Plant and Equipment:
Equipment (at cost)		120.0%	100.0%
Less: accumulated depreciation		220.0%	100.0%
Equipment, net of accumulated depreciation		95.0%	100.0%
Intangible Assets:
Customer database (at cost)		100.0%	100.0%
Less: accumulated amortization		200.0%	100.0%
Customer database, net of accumulated amortization		75.0%	100.0%
Total Assets		111.7%	100.0%
Liabilities
Accounts payable		90.6%	100.0%
Accrued liabilities		62.5%	100.0%
Total current liabilities		85.9%	100.0%
Long-term Liabilities:
Notes payable		100.0%	100.0%
Total Liabilities		90.8%	100.0%
Shareholders' Equity
Common stock, $1 par		125.0%	100.0%
Additional paid-in-capital on common stock		119.4%	100.0%
Total contributed capital		120.0%	100.0%
Retained earnings		266.7%	100.0%
Total Shareholders' Equity		126.3%	100.0%
Total Liabilities and Shareholders' Equity		111.7%	100.0%

Problem 6-3

Required: Refer to the Chapter 6 Homework Spreadsheets above. Compute the 2017 profitability, liquidity and solvency ratios for Extreme Edge.

2017 2016 2015

Market Price per Share of Stock	$ 7.20	$ 8.10	$ 7.65
Market Capitalization	$ 360,000	$ 405,000	$ 306,000

Ratios	2017	2016	2015
Return on equity		6.8%	4.3%
Return on assets		8.8%	5.6%
Operating profit margin		5.8%	4.0%
Asset turnover		1.51	1.41
Working capital		$ 233	$ 98
Working capital (current) ratio		241.2%	151.0%
Inventory turnover		2.89	3.53
Days in inventory		126.09	103.42
Accounts receivable turnover		15.00	11.11
Days in accounts receivable		24.33	32.85
Accounts payable turnover		4.55	3.75
Days in accounts payable		80.2	97.3
Net cash conversion cycle		70	39
Total debt to total capital		33.4%	41.1%
Earnings coverage ratio		700.0%	400.0%
Price-to-earnings ratio		11.3	17.0

Just need Problem 6-3