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Chapter 2: 2-3DQ (page 46)
Explain how depreciation generates actual cash flows for the company.
Depreciation refers to the decrease in the fair value of the company’s assets over a period of time.Depreciation is charged due to the usage of the assets by the organization and their obsolescence.
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Indicate if there is an improvement or decline in total asset turnover, and based on the other ratios, indicate why this development has taken place.
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?
Elite Trailer Parks has an operating profit of \(200,000. Interest expense for the year was \)10,000; preferred dividends paid were \(18,750; and common dividends paid were \)30,000. The tax was $61,250. The firm has 20,000 shares of common stock outstanding.
a. Calculate the earnings per share and the common dividends per share for
Elite Trailer Parks.
b. What was the increase in retained earnings for the year?
A firm has net income before interest and taxes of \(193,000 and interest expense of \)28,100.
b. If the firm’s lease payments are $48,500, what is the fixed charge coverage?
Using the income statement for Times Mirror and Glass Co., compute the following ratios:
The total assets for this company equal \(80,000. Set up the equation for the Du Pont system of ratio analysis, and compute c, d, and e.
d. Total assets turnover ratio.
Times mirror and glass company | |
Sales | \)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
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