Question

Given 2016 2015 2014 Days Inventory (365 x Average inventory / Cost of sales) 83 82 75 Sales/Store ($ million) 14.0 13.9 13.5 = Transactions/Store (Thousands) 466.5 459.9 446.3 x Sales/Transactions ($) 30.01 30.22 30.25 Sales/Store ($ million) 14.0 13.9 13.5 = Square feet/Store (Thousands) 80.0 77.4 73.7 x Sales/Square foot ($) 175.0 179.59 183.18 Given (Thousands) 2016 2015 2014 2013 Sales 700,000 432,800 256,200 117,600 Gross profit 181,400 114,300 70,000 33,400 Net income 8,200 14,100 10,300 5,300 Working capital 106,500 100,100 49,300 12,900 Total assets 380,200 249,400 105,200 33,000 Long-term debt 200,000 118,000 4,400 200 Stockholders’ equity 89,100 80,200 65,300 18,400 I. From the above information, compute the following for the calendar years 2016, 2015 and 2014. A. Return on average equity (%) B. Asset turnover (Net Sales/Average Assets) C. Return on net sales (%) II. Based on the above information, explain the following: A. Why are net sales increasing? B. Is the Company operating more or less efficiently (profitably)? Explain your answer. C. Is the Company operating more or less effectively (productively)? Explain your answer.

Answer 1

Answer:-

RETURN ON AVERAGE EQUITY

2016

Average Equity = ($89,100+$80,200)/2 Average Equity = $84,650

Return on Average Equity = Net Income / Average Equity Return on Average Equity = $8,200 / $84,650 Return on Average Equity = 9.69%

2015:

Average Equity = ($80,200+$65,300)/2 Average Equity = $72,750

Return on Average Equity = Net Income / Average Equity Return on Average Equity = $14,100 / $72,750 Return on Average Equity = 19.38%

2014:

Average Equity = ($65,300=$18,400)/2 Average Equity = $41,850

Return on Average Equity = Net Income / Average Equity Return on Average Equty = $10,300 / $41,850 Return on Average Equity = 24.61%

ASSETS TURNOVER:

2016:

Average Assets = ($380,200+$249,400)/2 Average Assets = $314,800

Assets Turnover = Net Sales / Average Assets Assets Turnover = $700,000 / $314,800 Assets Turnover = 2.22

2015:

Average Assets = ($249,400+$15,200)/2 Average Assets = $177,300

Assets Turnover = Net Sales / Average Assets Assets Turnover = $432,800 / $177,300 Assets Turnover = 2.44

2014:

Average Assets = ($105,200+33,000)/2 Average Assets = $69,100

Assets Turnover = Net Sales / Average Assets Assets Turnover = $256,200 / $69,100 Assets Turnover = 3.71

RETURN ON NET SALES:

2016:

Return on Net Sales = Net Income / Net Sales Return on Net Sales = $8,200 / $700,000 Return on Net Sales = 1.17%

2015:

Return on Net Sales = $14,100 / $432,800 Return on Net Sales = 3.26%

2014:

Return on Net Sales = $10,300 / $256,200 Return on Net Sales = 4.02%