The Comparative Financial Statements Of Bettancort Inc Are A

The Comparative Financial Statements Of Bettancort Inc Are As Follows

The comparative financial statements of Bettancort Inc. include income statements, balance sheets, and retained earnings statements for the years ending December 31, 2016, and 2015. Using these statements, various financial ratios and measures are to be calculated to assess the company's financial health and performance for 2016. Specifically, the calculations include working capital, current ratio, quick ratio, accounts receivable turnover, number of days' sales in receivables, inventory turnover, number of days' sales in inventory, ratio of fixed assets to long-term liabilities, ratio of liabilities to stockholders' equity, times interest earned, times preferred dividends earned, asset utilization ratio, return on total assets, return on stockholders' equity, return on common stockholders' equity, earnings per share, market price-earnings ratio, dividends per share, and dividend yield.

Paper For Above instruction

Achieving comprehensive financial analysis requires understanding and calculating various ratios and measures that provide insights into a company's liquidity, efficiency, leverage, profitability, and market valuation. This paper evaluates Bettancort Inc.'s financial health for the year 2016 by calculating these essential financial ratios based on provided financial statements. The analysis begins with liquidity ratios, followed by efficiency, leverage, profitability, and market valuation metrics, which collectively depict the company's operational performance and financial stability.

Liquidity Ratios

Liquidity ratios assess a company's ability to meet short-term obligations. The first measure is working capital, calculated as current assets minus current liabilities. For 2016, Bettancort's current assets totaled $1,100,000, and current liabilities were $440,000, yielding a working capital of $660,000. A positive working capital indicates the company has sufficient short-term assets to cover its liabilities.

The current ratio, a measure of liquidity, is derived by dividing current assets by current liabilities. For 2016, it equals $1,100,000 / $440,000 ≈ 2.5. This ratio signifies that Bettancort has $2.50 in current assets for every dollar of current liabilities, indicating a strong liquidity position.

The quick ratio, which measures immediate liquidity by excluding inventories and prepaid expenses (less liquid assets), involves cash, marketable securities, and accounts receivable. These quick assets total $450,000 (cash) + $300,000 (marketable securities) + $130,000 (accounts receivable) = $880,000. Hence, the quick ratio is $880,000 / $440,000 ≈ 2.0, reflecting Bettancort's capacity to settle short-term liabilities without relying on inventory sales.

Efficiency Ratios

The accounts receivable turnover ratio evaluates how often accounts receivable are converted into cash annually. It is calculated as net sales divided by average net accounts receivable. For 2016, net sales are $1,200,000, and beginning and ending receivables are $130,000 for 2016 and $- (assumed unchanged or based on the given figures). The average receivable is approximately ($130,000 + $130,000) / 2 = $130,000. Therefore, the accounts receivable turnover is $1,200,000 / $130,000 ≈ 9.2 times. This signifies that Bettancort collects its receivables roughly nine times a year.

The number of days' sales in receivables indicates the average number of days it takes to collect receivables. It is calculated as 365 / accounts receivable turnover, which is approximately 365 / 9.2 ≈ 40 days, showing collection efficiency.

The inventory turnover ratio measures how often inventory is sold and replaced within a year. It is computed as COGS / average inventory. COGS for 2016 is $500,000, and inventory is $67,000, with no provided beginning inventory; assuming constant inventory, the inventory turnover is $500,000 / $67,000 ≈ 7.46. This implies inventory is sold approximately 7.5 times annually.

The number of days' sales in inventory is calculated as 365 / inventory turnover, approximately 365 / 7.46 ≈ 49 days, suggesting how long inventory remains in stock before sale.

Leverage Ratios

The ratio of fixed assets to long-term liabilities assesses whether the company has sufficient fixed assets to cover its long-term obligations. With net property, plant, and equipment at $188,000 and long-term liabilities totaling $1,100,000, this ratio is $188,000 / $1,100,000 ≈ 0.17, indicating limited fixed assets relative to long-term debt.

The debt-to-equity ratio measures the level of financial leverage. Total liabilities are $1,540,000, and total stockholders' equity is $3,230,000. The ratio is $1,540,000 / $3,230,000 ≈ 0.48, suggesting moderate leverage.

The ratio of fixed assets to long-term liabilities is low, indicating a conservative asset structure relative to obligations.

Profitability Ratios

The times interest earned ratio assesses how comfortably earnings can cover interest expenses. Income from operations ($280,000) minus interest ($66,000) equals earnings before interest and taxes (EBIT). Therefore, EBIT is $280,000 + $66,000 = $346,000. The times interest earned ratio is $346,000 / $66,000 ≈ 5.2 times, indicating earnings sufficiently cover interest payments five times over.

The ratio of net income to preferred dividends indicates earnings available to common shareholders. Net income is $300,000, and preferred dividends are $15,000, resulting in a ratio of $300,000 / $15,000 = 20 times, symbolizing strong earnings relative to preferred dividends.

The return on total assets (ROA) is net income divided by average total assets. The total assets for 2016 are $4,770,000 and for 2015 are $4,355,000, giving an average of ($4,770,000 + $4,355,000) / 2 = $4,562,500. The ROA is $300,000 / $4,562,500 ≈ 6.58%, indicating efficient asset utilization.

The return on equity (ROE) is net income over average stockholders' equity. With stockholders' equity of $3,230,000 and $2,955,000 in 2015, the average is ($3,230,000 + $2,955,000) / 2 ≈ $3,092,500. Thus, ROE = $300,000 / $3,092,500 ≈ 9.7%, reflecting the return generated for shareholders.

The return on common stockholders' equity considers net income minus preferred dividends over average common equity. Assuming all equity is common (since preferred stock is minimal), the ratio closely aligns with ROE, approximately 9.7%.

Market Valuation Ratios and Earnings Per Share

Earned per share (EPS) is computed as net income minus preferred dividends divided by weighted average common shares. Assuming all common stock is outstanding, 10,000 shares, EPS is $300,000 / 10,000 = $30.00.

The market price-earnings ratio (P/E) is the market price per share divided by EPS. With a market price of $71.25, P/E = $71.25 / $30.00 ≈ 2.4, indicating investors are willing to pay 2.4 times earnings.

Dividends per share (DPS) are dividends paid divided by the number of shares. Dividends paid per share are $10,000 / 10,000 = $1.00.

The dividend yield is calculated as dividends per share divided by the market price per share: $1.00 / $71.25 ≈ 1.4%. This figure shows the cash return on investment from dividends.

Conclusion

Analysis of Bettancort Inc.'s 2016 financial ratios demonstrates a company with solid liquidity, reasonable leverage, and moderate profitability. The company's current and quick ratios suggest good short-term financial health, while efficiency ratios indicate effective receivables and inventory management. Profitability metrics reveal satisfactory returns on assets and equity, and the market valuation ratios suggest investor confidence at a moderate level. The overall financial position indicates a stable, efficiently managed company with prudent leverage and strong earnings capacity.

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