Question

Financial statements for Askew Industries for 2021 are shown below (in thousands):

2021 Income Statement
Net sales	$	9,900
Cost of goods sold		(6,525	)
Gross profit		3,375
Operating expenses		(2,325	)
Interest expense		(290	)
Income tax expense		(304	)
Net income	$	456

Comparative Balance Sheets
	Dec. 31
	2021				2020
Assets
Cash	$	690			$	590
Accounts receivable		690				490
Inventory		890				690
Property, plant, and equipment (net)		2,900				3,000
	$	5,170			$	4,770
Liabilities and Shareholders’ Equity
Current liabilities	$	1,640			$	1,390
Bonds payable		1,850				1,850
Common stock		690				690
Retained earnings		990				840
	$	5,170			$	4,770

Required:
Calculate the following ratios for 2021. (Consider 365 days a year. Do not round intermediate calculations and round your final answers to 2 decimal places.)
1. inventory turn over ratio:________

2. Average days in inventory:_______ days

3. Receivables turnover rate:_______

4. Average collection period:________days

5. Asset turnover ratio:_________

6. Profit margin on sales:______%

7. Return on assets:__________%

8. Return on equity:________%

9. Equity multiplier:____________times

10. Return on equity (using the DuPoint framework):_________%

  

Answer 1

Ratios for 2021

Ser.	Ratio	Formula	Calculation	Ratio
1	The inventory turnover ratio	cost of goods sold/average inventory1	$6,525/$7901	8.26 Times
2	Average days in inventory	(average inventory/cost of goods sold)x365 or 365/inventory turnover ratio	($790/$6525)*365	44.19 Days
3	Receivables turnover rate	net credit sales/average accounts receivable	$9900/$590	16.75 Times
4	Average collection period	(average accounts receivable/net credit sales)x365	($590/$9900)*365	21.75 Days
5	Asset turnover ratio	net sales/average total assets	$9900/$4970	1.99 Times
6	Profit margin on sales	(net income / net sales)x100	($456/$9900)x100	4.61%
7	Return on assets	(net income/average total assets3)x100	($456/$49703)x100	9.18%
8	Return on equity	(net income/Average shareholders' equity)x100	($456/$1605)x100	28.41%
9	Equity multiplier	total assets / Its total stockholders' equity	$5170/$1680	3.08
10	Return on equity (using the DuPoint framework)	Profit Margin x Total Asset Turnover x Equity Multiplier 4	4.606% x 1.99 x 3.104	28.41%

Working Notes-

1.Average inventory=(Begining inventory+Ending inventory) / 2= (890+690)/2=$790

2.Average Receivables=(Begining Receivables+Ending Receivables) / 2= (690+490)/2=$590

3.Average total assets=(Begining total assets+Ending total assets) / 2= (5170+4770)/2=$4970

4.Equity Multiplier= Average Assets ÷ Average Shareholders’ Equity.=4970/1605=3.10

In case of any doubt, please write in comment section.

Thanks & all the best......