Question

Given the financial statements for Jones Corporation and Smith Corporation:  

JONES CORPORATION
Current Assets					Liabilities
Cash			$	121,300	Accounts payable	$	122,000
Accounts receivable				81,800	Bonds payable (long term)		82,400
Inventory				54,500
Long-Term Assets					Stockholders' Equity
Gross fixed assets	$	519,000			Common stock	$	150,000
Less: Accumulated depreciation		151,200			Paid-in capital		70,000
Net fixed assets*				367,800	Retained earnings		201,000
Total assets			$	625,400	Total liabilities and equity	$	625,400

    

Sales (on credit)	$	1,252,000
Cost of goods sold		758,000
Gross profit	$	494,000
Selling and administrative expense†		311,000
Depreciation expense		51,900
Operating profit	$	131,100
Interest expense		8,200
Earnings before taxes	$	122,900
Tax expense		100,600
Net income	$	22,300

*Use net fixed assets in computing fixed asset turnover.
†Includes $13,500 in lease payments.
  

SMITH CORPORATION
Current Assets					Liabilities
Cash			$	36,500	Accounts payable	$	83,200
Marketable securities				11,600	Bonds payable (long term)		213,000
Accounts receivable				75,700
Inventory				84,500
Long-Term Assets					Stockholders' Equity
Gross fixed assets	$	545,000			Common stock	$	75,000
Less: Accumulated depreciation		254,900			Paid-in capital		30,000
Net fixed assets*				290,100	Retained earnings		97,200
Total assets			$	498,400	Total liabilities and equity	$	498,400

*Use net fixed assets in computing fixed asset turnover.

   

SMITH CORPORATION
Sales (on credit)	$	1,290,000
Cost of goods sold		847,000
Gross profit	$	443,000
Selling and administrative expense†		248,000
Depreciation expense		55,000
Operating profit	$	140,000
Interest expense		29,100
Earnings before taxes	$	110,900
Tax expense		59,800
Net income	$	51,100

^†Includes $13,500 in lease payments.
  
a. Compute the following ratios. (Use a 360-day year. Do not round intermediate calculations. Input your profit margin, return on assets, return on equity, and debt to total assets answers as a percent rounded to 2 decimal places. Round all other answers to 2 decimal places.)

Jones Corp. Smith Corp. Profit margin % % Return on assets (investments) % % Return on equity % % Receivable turnover times times Average collection period days days Inventory turnover times times Fixed asset turnover times times Total asset turnover times times Current ratio times times Quick ratio times times Debt to total assets % % Times interest earned times times Fixed charge coverage times times

Answer 1

		JONES Corporation				Smith Corporation
Computation of ratios
	Formula	Computation	ratio			Computation	ratio
Profit margin	net income / net Sales   *100	22300/1252000	1.78%			51100/1290000	3.96%
return on assets	net income / Total Assets *100	22300/625400	3.57%			51100/498400	10.25%
return on Equity	net income/ Equity   *100	22300/421000	5.30%			51100/202200	25.27%
Receivables Turnover	net sales / average receivables	1252000/81800	15.31	Times		1290000/75700	17.04	Times
Average Collection period	365/ Receivables Turnover ratio	360/15.31	23.51	days		360/17.04	21.13	days
inventory Turnover	Cost of goods sold/ average Inventory	758000/54500	13.91	Times		847000/84500	10.02	Times
Fixed Asset turnover	Net Sales / net Fixed assets	1252000/367800	3.40	Times		1290000/290100	4.45	Times
Total Assets turnover	Net Sales / Net assets	1252000/625400	2.00	Times		1290000/498400	2.59	Times
Current ratio	Currnet Assets / Current Liabilities	257600/122000	2.11	Times		208300/83200	2.50	Times
Quick ratio	Quick Assets /Quick Liabiliites	203100/122000	1.66	Times		123800/83200	1.49	Times
Debt to Total Asstes	Total Debt / Total Assets   *100	204400/625400	32.68%			296200/498400	59.43%
times of interest earned	EBIT/ Interest Expenses	131100/8200	15.99	Times		140000/29100	4.81	Times