PS. All amounts are in dollar.
6.
One Size Fits All Casket Co.
a. Profit margin for 2008
Profit margin= Net Income
Sales
=
=
262,500
$3, 000, 000
8.75%
b. Sales
Cost of goods sold
Gross profit
Selling and administrative expense
Operating profit
Interest expense
Income before taxes
Taxes (30%)
Income after taxes (2008)
*3,000,000 x 1.10= 3,300,000
*2,100,000 x 1.25= 2,625,000
3,300,000*
2,625,000*
675,000
450,000
225,000
75,000
150,000
45,000
105,000
Profit margin for 2009
Profit margin= Net Income
Sales
=
=
105,000
$3, 300, 000
3.18%
10.
Global Healthcare Products
In comparison with the asset turnover ratio, Global
healthcare product has a higher turnover ratio than the
industry. As to compute its asset turnover all you have to
do is divide the return on assets to return on sales, thus,
having 9 and 1.2, respectively.
11.
Acme Transportation Company
If we calculate the company’s debt to asset it has
25%, while the industry it has 75%. Hence, base from the
calculated ratio the Acme Transportation Company has a
lower debt/total asset ratio than the industry
15.
Interactive Technology and Silicon Software
a. Interactive Technology
Return on Equity =
Net income
Stockholder’s equity
=
15,000
100,000
= 0.15 or 15%
a. Silicon Software
Return on Equity =
Net income
Stockholder’s equity
=
50,000
160,000
= 0.3125 or 31.25%
Therefore, Silicon Software has a higher return on equity
than Interactive Technology.
b. Interactive Technology
Net Income = 15,000 = 10%
Sales
150,000
Net Income = 15,000 = 9.37%
Total Assets 160,000
Sales
= 150,000
Total Assets
160,000
= 0.937x
Debt
= 60,000
Total Assets 160,000
= 37.5%
b. Silicon Software
Net Income = 50,000 = 5%
Sales
1,000,000
Net Income = 50,000 = 12.5%
Total Assets 400,000
Sales
= 1,000,000 = 2.5x
Total Assets
400,000
Debt
= 240,000
Total Assets 400,000
= 60%
c.
Silicon Software (SS) has a substantially higher return
on stockholder’s equity than Interactive Technology (IT).
Upon the calculation of return on the sales, the Interactive
Technology has a higher return than Silicon Software
(10% vs. 5%).
However, Silicon Software has a higher return than
Interactive Technology on total assets (12.5% versus
9.37%). The reason is clearly to be found in total asset
turnover, which strongly favors Silicon Software over
Interactive Technology (2.5x versus.937x).This factor
alone leads to the higher return on total assets.
16.
Average collection period =
Accounts receivable
Average daily credit sales
(3,000,000 x 90%)
= 285,000/
=
285,000
7,500 per day
= 38 days
360 days
28.
Omni Technology Holding Company
Software
a. Net income/
sales
5.0%
Personal
computer
3.3%
Foreign
Operations
8.0%
Based on its ratio, the foreign operation has the highest return on sales.
b. Net income/
total assets
40.0%
8.0%
13.3%
Based on its ratio, the personal computer has the highest return on assets.
c. Sales/
Total assets
8.0x
2.4x
1.7x
Based on its ratio, the software has the highest return on total asset
turnover.
d. Net income/
Stockholder’s
equity
50.0%
20.0%
16.0%
Based on its ratio, the software has the highest return on stockholder’s
equity.
e. Debt/
Total assets
20.0%
60.0%
16.7%
Based on its ratio, the personal computer has the debt/total assets ratio.
f. This is because of its high total turnover ratio of 8.0x
times in part c.
g. This is because the personal computer affiliate has a
higher debt ratio (60.0%) than the foreign operations
affiliate (16.7%).
30.
CONSTRUCT THE BALANCE SHEET
Inventory
=
=
720,000/6
120,000
Accounts receivable
=
=
(720,000/360) x 365
70,000
Current Asset
=
=
2 x 105,000
210,000
Cash
=
=
210,000 – 120,000 – 70,000
20,000
Cash
Accounts receivable
Inventory
Total Current Assets
20,000
70,000
120,000
210,000