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Chapter 2: 4BP (page 24)
Billy’s Crystal Stores Inc. has assets of $5,960,000 and turns over its assets 1.9 times per year. Return on assets is 8 percent. What is the firm’s profit margin (return on sales)?
The profit margin of the company is 4.21%.
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Stein Books Inc. sold 1,900 finance textbooks for \(250 each to High Tuition University in 20X1. These books cost \)210 to produce. Stein Books spent \(12,200 (selling expense) to convince the university to buy its books. Depreciation expense for the year was \)15,200. In addition, Stein Books borrowed $104,000 on January 1, 20X1, on which the company paid 12 percent interest. Both the interest and principal of the loan were paid on December 31, 20X1. The publishing firm’s tax rate is 30 percent. Did Stein Books make a profit in 20X1? Please verify with an income statement.
Using the income statement for Times Mirror and Glass Co., compute the following ratios:
b. The fixed charge coverage.
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
Vriend Software Inc.’s book value per share is \(15.20. If earnings per share is\)1.88 and the firm’s stock trades in the stock market at 3.5 times book value pershare, what will the P/E ratio be? (Round to the nearest whole number.)
Prepare an income statement for Franklin Kite Co. Take your calculations all the way to computing earnings per share.
Sales | $900,000 |
Shares outstanding | 50,000 |
Cost of goods sold | 400,000 |
Interest expenses | 40,000 |
Selling and administration expenses | 60,000 |
Depreciation expenses | 20,000 |
Preferred stock dividend | 80,000 |
Taxes | 50,000 |
a. Swank Clothiers had sales of \(383,000 and cost of goods sold of \)260,000. What is the gross profit margin (ratio of gross profit to sales)?
b. If the average firm in the clothing industry had a gross profit of 25 percent,
how is the firm doing?
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