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Chapter 2: 8BP a (page 79)
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?
The return on assets of the company is 10%.
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Question:The Haines Corp. shows the following financial data for 20X1 and 20X2:
20X1 | 20X2 | |
Sales | \(3,230,000 | \)3,370,000 |
Cost of goods sold | 2,130,000 | 2,850,000 |
Gross profits | \(1,100,000 | \)520,000 |
Selling and administrative expenses | 298,000 | 227,000 |
Operating profits | \(802,000 | \)293,000 |
Interest expense | 47,200 | 51,600 |
Income before taxes | \(754,800 | \)241,400 |
Taxes (35%) | 264,180 | 84,490 |
Income after tax | \(490,620 | \)156,910 |
For each year, compute the following and indicate whether it is increasing or
decreasing profitability in 20X2 as indicated by the ratio:
b. Selling and administrative expense to sales.
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.
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?
What advantage does the fixed charge coverage ratio offer over simply using times interest earned?
Nova Electrics anticipates cash flow from operating activities of \(6 million in 20X1. It will need to spend \)1.2 million on capital investments to remain
competitive within the industry. Common stock dividends are projected at
\(.4 million and preferred stock dividends at \).55 million.
a. What is the firm’s projected free cash flow for the year 20X1?
b. What does the concept of free cash flow represent?
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