Chapter 17, Problem S17.7SE

Use the following information for Short Exercises S17-6 through S17-10.

Shine’s Companies, a home improvement store chain, reported the following summarized figures:

SHINE’S COMPANIES Income Statement Years Ended May 31, 2016 and 2015
	2016	2015
Net Sales	$ 57,200,000	$ 41,100,000
Cost of Goods Sold	20,600,000	29,300,000
Interest Expense	700,000	630,000
All Other Expenses	6,900,000	8,400,000
Net Income	$ 29,000,000	$ 2,770,000

SHINE’S COMPANIES Balance Sheet May 31, 2016 and 2015
	Assets		Liabilities
	2016	2015		2016	2015
Cash	$ 2,200,000	$ 1,800,000	Total Current Liabilities	$ 24,000,000	$ 12,900,000
Short-term investments	26,000,000	10,000,000	Long-term Liabilities	13,400,000	10,800,000
Accounts Receivable	7,200,000	5,400,000	Total Liabilities	37,400,000	23,700,000
Merchandise Inventory	7,100,000	8,200,000	Stockholders’ Equity
Other Current Assets	9,000,000	1,800,000	Common Stock	13,000,000	13,000,000
Total Current Assets	51,500,000	27,200,000	Retained Earnings	33,100,000	18,500,000
All Other Assets	32,000,000	28,000,000	Total Equity	46,100,000	31,500,000
Total Assets	$ 83,500,000	$ 55,200,000	Total Liabilities and Equity	$ 83,500,000	$ 55,200,000

Shine’s has 100,000 common shares outstanding during 2016.

S17-6Evaluating current ratio

Requirements

1. Compute Shine’s Companies’ current ratio at May 31,2016 and 2015.
2. Did Shine’s Companies’ current ratio improve, deteriorate, or hold steady during 2016?

S17-7 Computing inventory, gross profit, and receivables ratios

Requirements

1. Compute the inventory turnover, days’ sales in inventory, and gross profit percentage for Shine’s Companies for 2016.
2. Compute day’s sales in receivables during 2016. Round dollar amounts to three decimal places. Assume all sales were on account.
3. What do these ratios say about Shine’s Companies’ ability to sell inventory and collect receivables?

S17-8 Measuring to pay liabilities

Requirements

1. Compute the debt ratio and the debt to equity ratio at May 331, 29016, for Shine’s Companies.
2. Is Shine’s ability to pay its liabilities strong or weak? Explain your reasoning.

S17-9 Measuring profitability

Requirement

1. Compute the profit margin ratio for Shine’s Companies for 2016.
2. Compute the rate of return on total assets for 2016.
3. Compute the asset turnover ratio for 2016.
4. Compute the rate of return on common stockholders’ equity for 2016.
5. Are these rates of return strong or weak? Explain your reasoning.

S17-10 Computing EPS and P/E ratio

Requirements

1. Compute earnings per share (EPS) for 2016 for Shine’s. Round to the nearest cent.
2. Compute Shine’s Companies’ price/earnings ratio for 2016. The market price per share of Shine’s stock is $ 65.50.
3. What do these results mean when evaluating Shine’s Companies’ profitability?