516 Chapter 12 Financial Statements
- Calculate the gross and net profi t margins for the Tastee Lard Donut Shoppe.
- If a company has a net profi t margin of 5.25% on sales totaling $425,575, what is the company’s net income?
- Dave’s Magic Shop has net assets of $316,000. The company earned $26,500 last year. The company’s liabilities total
$207,000. Calculate (a) the return on assets and (b) the return on equity. - Calculate the return on assets and the return on equity for the Tastee Lard Donut Shoppe.
- a. HighDebtCorp Inc. has assets totaling $25,000,000. The company earned $5,400,000 last year. The company’s
liabilities total $23,000,000. Calculate the company’s ROA and ROE.
b. LowDebtCorp Inc. also has total assets of $25,000,000. The company also earned $5,400,000 last year. The
company’s liabilities total $5,000,000. Calculate this company’s ROA and ROE.
c. Compare your results in (a) and (b). What does this suggest about companies whose ROA and ROE are close
together? Far apart? - Suppose your company’s return on assets was calculated to be 14%. The average ROA in your industry 19%. Does this
suggest that your company is doing a good job of putting assets to use, or that your company could be doing better?
Explain your reasoning. - Calculate the inventory turnover ratio for the Tastee Lard Donut Shoppe.
- Constant Philatelic Sales had an inventory valued (at cost) at $418,500 at the start of last year and $396,000 at the
end of the year. During the year, the company sold merchandise that had a total cost of $296,500.
a. Calculate the inventory turnover ratio.
b. Cohen Philatelic Sales, a close competitor, had an inventory turnover ratio of 1.15. Which company is selling its
merchandise more quickly? - a. Suppose your company’s accounts receivable total $47,530 and your annual sales are $235,000. Calculate your
company’s average collection days.
b. Suppose that, for the type of business you are in, the typical average collection days is 115 days. Are you doing a
better or worse than average job of collecting on your receivables. - Calculate the average collection days for the Tastee Lard Donut Shoppe. Why do you suppose the value is so low?
B. Balance Sheet Ratios
- Calculate the current ratio and the quick ratio for the Tastee Lard Donut Shoppe.