FIN 301: Harris Corporation Financial Ratio Analysis Assignment

This assignment analyzes the financial performance of Harris Corporation using various financial ratios. The solution calculates and interprets the acid-test ratio, inventory turnover, days' sales in receivables, book value per share, price-earnings ratio, rate of return on total assets, times-interest-earned ratio, and current ratio for the current year. The calculations are based on provided financial data, including net sales, cost of goods sold, income from operations, interest expense, net income, and balance sheet items like cash, accounts receivable, inventory, and liabilities. The assignment demonstrates the application of these ratios to assess the company's liquidity, efficiency, profitability, and solvency. Supporting calculations for each ratio are also included, providing a comprehensive understanding of the financial analysis process.

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The following information relates to Harris Corporation.

Account Current year Prior year
Net sales (all credit) $520,125 $499,500
Cost of goods sold $375,960 $353,600
Gross profit $144,165 $145,900
Income from operations $ 95,500 $ 79,900
Interest expense $ 23,500 $ 19,500
Net income $ 57,600 $ 51,600
Cash $ 30,600 $ 15,900
Accounts receivable, net $ 33,800 $ 23,200
Inventory $ 42,000 $ 30,300
Prepaid expenses $ 2,000 $ 1,500
Total current assets $ 108,400 $ 70,900
Total long-term assets $ 62,000 $ 38,000
Total current liabilities $ 46,000 $ 41,600
Total long-term liabilities $ 20,000 $ 22,700
Common stock, no par, 3,000 shares, value
$50/share $ 30,000 $ 30,000
a. What is the acid-test ratio for the current year?
Solution-
Acid-test ratio = (Current Assets – Inventory – Prepaid Expenses)/Current Liabilities
Acid-test ratio = ($108,400 - $42,000 - $2,000)/$46,000
Acid-test ratio = 1.40
b. What is the inventory turnover for the current year?
Solution-
Inventory turnover = Cost of goods sold/Average Inventory
Inventory turnover = $375,960 / [($42,000+$30,300)/2]
Inventory turnover = 10.40
c. What is days’ sale in receivables for the current year?
Solution-
Days’ sale in receivables = Average Accounts receivable *365 / Net credit sales
Days’ sale in receivables = {[($33,800+$23,200)/2]*365}/$520,125
Days’ sale in receivables = 20 days
d. What is the book value per share of common stock for the current year?
Solution-
Book value per share of common stock = (Total asset -Total liabilities) / Number of
shares
Book value per share of common stock = ($170,400-$66,000)/3,000

Book value per share of common stock = $34.80
Calculation-
Total Assets (Current Year) = Total current assets + Total long-term assets
Total Assets (Current Year) = $108,400 + $62,000
Total Assets (Current Year) = $170,400
Total liabilities (Current Year) = Total current liabilities + Total long-term liabilities
Total liabilities (Current Year) = $46,000+$20,000
Total liabilities (Current Year) = $66,000
e. What is the price-earnings ratio for the current year?
Solution-
Price-earnings ratio = Market Price / Earnings per share
Price-earnings ratio = $50/$19.20
Price-earnings ratio = 2.60
Calculation-
Earnings per share = Net income /Number of shares
Earnings per share = $57,600/3,000
Earnings per share = $19.20
f. What is the rate of return on total assets for the current year?
Solution-
Rate of return on total assets = Net Income/ Average Total Assets
Rate of return on total assets = $57,600 /($170,400+$108,900)/2
Rate of return on total assets = 41.25%
Calculation-
Total Assets (Current Year) = Total current assets + Total long-term assets
Total Assets (Current Year) = $108,400 + $62,000
Total Assets (Current Year) = $170,400
Total Assets (Previous Year) = Total current assets + Total long-term assets
Total Assets (Previous Year) = $70,900 +$38,000
Total Assets (Previous Year) = $108,900

g. What is the times-interest-earned ratio for the current year?
Solution-
Times-interest-earned ratio = (EBIT-Interest Expense)/ Interest Expense
Times-interest-earned ratio = $95,500/ $23,500
Times-interest-earned ratio = 4.06
h. What is the current ratio for the current year?
Solution-
Current ratio = Current Assets/ Current Liabilities
Current ratio = $108,400/ $46,000
Current ratio = 2.36