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Chapter 2: 8BP b (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.
b. What is its return on stockholders’ equity?
The return on stockholder’s equity of the company is 33.33%
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Inflation can have significant effects on income statements and balance sheets, and therefore on the calculation of ratios. Discuss the possible impact of inflation on the following ratios, and explain the direction of the impact based on your assumptions. (LO3-5)
c. Fixed asset turnover
Is there any validity in rule-of-thumb ratios for all corporations, such asa current ratio of 2 to 1 or debt to assets of 50 percent?
A-Rod Fishing Supplies had sales of \(2,500,000 and cost of goods sold of \)1,710,000. Selling and administrative expenses represented 10 percent of sales. Depreciation was 6 percent of the total assets of $4,680,000. What was the firm’s operating profit?
Using the income statement for Times Mirror and Glass Co., compute the following ratios:
The total assets for this company equal \(80,000. Set up the equation for the Du Pont system of ratio analysis, and compute c, d, and e.
e. Return on assets (investment).
Times mirror and glass company | |
Sales | \)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
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 | \(698000 |
| Interest Expense | 54800 |
| Income before taxes | \)643200 |
| Taxes30% | 192960 |
| Income after-tax | $ 450240 |
Compute the profit margin for 20X1.
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