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Chapter 2: 15BP a (page 80)
Using the Du Pont method, evaluate the effects of the following relationships for the Butters Corporation:
a. Butters Corporation has a profit margin of 7 percent and its return on assets
(investment) is 25.2 percent. What is its assets turnover?
Assets turnover: 3.6%
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Landers Nursery and Garden Stores has current assets of \(220,000 and fixed assets of \)170,000. Current liabilities are \(80,000 and long-term liabilities are \)140,000. There is $40,000 in preferred stock outstanding and the firm has
issued 25,000 shares of common stock. Compute book value (net worth)
per share.
In 20X2, sales increased to \(5,740,000 and the assets for that year were as follows:
Cash | \)163,000 |
Accounts receivable | 924,000 |
Inventory | 1,063,000 |
New plant and equipment | 520,000 |
Total assets | $2,670,000 |
Once again compute the four ratios
b. Compute the following:
1. Accounts receivable turnover.
2. Inventory turnover.
3. Fixed asset turnover.
4. Total asset turnover.
Dr. Zhivàgo Diagnostics Corp.’s income statement for 20X1 is as follows
| Sales | \( 2790000 |
| Cost of goods sold | 1790000 |
| Gross profits | \) 1000000 |
| Selling and administrative expenses | 302000 |
| Operating profits | \( 698000 |
| Interest Expense | 54800 |
| Income before tax | \) 643200 |
| Taxes 30% | 192960 |
| Income after tax | $ 450240 |
b. Assume that in 20X2, sales increase by 10 percent and cost of goods sold increases by 20 percent. The firm is able to keep all other expenses the same. Assume a tax rate of 30 percent on income before taxes. What is income after taxes and the profit margin for 20X2?
Using the income statement for Times Mirror and Glass Co., compute the following ratios:
The total assets for this company equal \(80,000. Set up the equation for the Du Pont system of ratio analysis, and compute c, d, and e.
c. Profit margin.
Times mirror and glass company | |
Sales | \)126,000 |
Less: Cost of goods sold | 93,000 |
Gross profit | \(33,000 |
Less: selling and administrative expenses | 11,000 |
Lease Expenses | 4,000 |
Operating profit* | \)18,000 |
Less: Interest expenses | 3,000 |
Earning before taxes | \(15,000 |
Less: Taxes (30%) | 4,500 |
Earning after taxes | \)10,500 |
*equal income before interest and taxes
Easter Egg and Poultry Company has \(2,000,000 in assets and \)1,400,000 of debt. It reports net income of $200,000.
a. What is the firm’s return on assets?
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