Financial Accounting: An Integrated Statements Approach, 2nd Edition

a. Determine the profit margin for fiscal years ending February 26, 2005, and February 28,

2004. Round to two decimal places.
      b. Determine the asset turnover for fiscal years ending February 26, 2005, and February 28,


2005. Round to two decimal places.
      c. Use the DuPont formula to determine the rate earned on total assets from (a) and (b).
      d. Interpret the change in the rate earned on total assets between the two fiscal periods.

Prince Foods Company disclosed the following comparative income statement information:

For the Year Ended

Dec. 31, 2007 Dec. 31, 2006

Sales $600,000 $500,000

Cost of goods sold 252,000 190,000

Gross profit $348,000 $310,000

Operating expenses 240,000 200,000

Income from operations $108,000 $110,000

The asset turnover for both 2006 and 2007 was 0.80.

a. Determine the rate earned on total assets for 2006 and 2007, using the DuPont formula.

b. Prepare common-size income statements for 2006 and 2007.

c. Analyze the change in the rate earned on total assets between 2006 and 2007 by conduct-

ing a margin analysis on common-size statements.

The following data are taken from the financial statements of Ovation Industries Inc. Terms of

all sales are 1/10, n/55.

2008 2007

Accounts receivable, end of year $ 48,219 $ 52,603

Monthly average accounts receivable (net) 45,070 46,154

Net sales 320,000 300,000

a. Determine for each year (1) the accounts receivable turnover and (2) the number of days’

sales in receivables. Round to nearest dollar and to one decimal place.

b. What conclusions can be drawn from these data concerning accounts receivable and

credit policies?

The Coca-Cola CompanyandPepsiCo, Inc., are the two largest beverage companies in the

United States. Both companies offer credit to their customers. Information from the financial

statements for both companies for a recent year is as follows (all numbers are in millions):

664 Chapter 14 Financial Statement Analysis

Feb. 26, 2005 Feb. 2 8 , 2004 Mar. 1, 2003

Total assets $3,200.0 $2,865.0 $2,188.8

Total liabilities 996.2 874.2 736.9

Total stockholders’ equity 2,203.8 1,990.8 1,451.9

Exercise 14-11

DuPont formula and margin

analysis

Goal 3

a. Rate earned on total

assets, 2006: 17.6%

Exercise 14-12

Accounts receivable analysis

Goal 3

a. Accounts receivable

turnover, 2008, 7.1

Exercise 14-13

Accounts receivable analysis

Goal 3

a. (1) Coca-Cola’s accounts

receivable turnover, 10.31

Coca-Cola PepsiCo

Sales $21,962 $29,261

Accounts receivable (net)—ending balance 2,171 2,505

Accounts receivable (net)—beginning balance 2,091 2,309

In addition, the balance sheet revealed the following information (in millions):