Question

Financial statements for Askew Industries for 2018 are shown below (in $000’s):

2018 Income Statement

Sales $ 8,700

Cost of goods sold (6,175 )

Gross profit 2,525

Operating expenses (1,875 )

Interest expense (150 )

Tax expense (200 )

Net income $ 300

Comparative Balance Sheets

Dec. 31

2018 2017

Assets

Cash $ 550 $ 450

Accounts receivable 550 350

Inventory 750 550

Property, plant, and equipment (net) 1,500 1,600

$ 3,350 $ 2,950

Liabilities and Shareholders’ Equity

Current liabilities $ 800 $ 550

Bonds payable 1,150 1,150

Paid-in capital 550 550

Retained earnings 850 700

$ 3,350 $ 2,950

Required:

Calculate the following ratios for 2018. (Consider 365 days a year. Do not round intermediate calculations and round your final answers to 2 decimal places.)

  

1. Inventory turnover ratio

2. Average days in inventory

3. receivables turnover ratio

4. Average collection period

5. Asset turnover ratio

6. Profit margin on sales

7. Return on Assets

8. Return on shareholders Equity

9. Equity multiplier

10. Return on Shareholders Equity ( using the Dupont framework)

Answer 1

Solution:

		Numerator	/	Denominator	=	Ratio
1)	Inventory Turnover	Cost of Goods Sold	/	Average Inventory	=	Inventory Turnover	times
	Inventory Turnover	$6,175,000	/	$650,000	=	9.50	times
2)	Average Days in Inventory	Number of Days in a year	/	Inventory Turnover Ratio	=	Average Days in Inventory	in days
	Average Days in Inventory	365	/	9.5	=	38.42	days
3)	Receivable Turnover Ratio	Net Credit Sales	/	Average Accounts Receivable, net	=	Receivable Turnover Ratio
	Accounts Receivable Turnover	$8,700,000	/	$450,000	=	19.33	times
4)	Average Collection Period	Number of days in a year	/	Receivable Turnover Ratio	=	Average Collectoin Period	in days
	Average Collection Period	365	/	19.3	=	18.88	days

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