Question

Presented below is selected information for Brimmer Company:

Changes in Various Ratios Presented below is selected information for Brimmer Company: 2013 2012 Sales revenue $912,000 $840,000 Cost of goods sold 577,000 542,000 Interest expense 22,000 20,000 Income tax expense 29,000 24,000 Net income 63,000 52,000 Cash flow from operating activities 67,000 55,000 Capital expenditures 44,000 45,000 Accounts receivable (net), December 31 128,000 120,000 Inventory, December 31 198,000 160,000 Stockholders' equity, December 31 452,000 400,000 Total assets, December 31 732,000 660,000 Required Calculate the following ratios for 2013. The 2012 results are given for comparative purposes. Round answers to one decimal place. Use 365 days in a year. 2012 2013 1. Gross profit percentage 35.5% Answer % 2. Return on assets 8.3% Answer % 3. Return on sales 6.2% Answer % 4. Return on common stockholders' equity (no preferred stock was outstanding) 13.9% Answer % 5. Accounts receivable turnover 8.0 Answer 6. Average collection period 45.6 days Answer days 7. Inventory turnover 3.6 Answer 8. Times-interest-earned ratio 4.8 Answer 9. Operating-cash-flow-to-capital-expenditures ratio 1.2 Answer

Answer 1

Gross Profit Percentage	Gross Profit / Sales Revenue = ($335,000 / 912,000) = 0.367 Note: Gross Profit = Sales – Cost of Goods Sold	36.7%
Return on Assets	Net Income / Average Total Assets = $63,000 / $696,000 = 0.090 Note: Average Total Assets = (Opening Balance + Closing Balance) / 2 = ($660,000 + $732,000) / 2 = $696,000	9.0%
Return on Sales	Net Income / Sales = $63,000 / $912,000 = 0.069	6.9%
Return on Common Stockholders’ Equity	Net Income / Average Stockholders’ Equity = $63,000 / $426,000 = 0.148 Note: Average Stockholders’ Equity = (Opening Balance + Closing Balance) / 2 = ($400,000 + $452,000) / 2 = $426,000	14.8%
Accounts Receivable Turnover Ratio	Sales / Average Accounts Receivable = $912,000 / $124,000 = 7.4 Note: Average Accounts Receivable = (Opening Balance + Closing Balance) / 2 = ($120,000 + $128,000) / 2 = $124,000	7.4 Times
Average Collection Period	365 Days / Accounts Receivable Turnover Ratio = 365 Days / 7.4 = 49.3	49.3 Days
Inventory Turnover Ratio	Cost of Goods Sold / Average Inventory = $577,000 / $179,000 =3.2 Note: Average Inventory = (Opening Balance + Closing Balance) / 2 = ($160,000 + $198,000) / 2 = $179,000	3.2 Times
Times Interest Earned Ratio	Net Income before Interest and Taxes / Interest Expense = ($63,000 + $29,000 + $22,000) / $22,000 = $114,000 / $22,000 = 5.2	5.2 Times
Operating Cash Flow to Capital Expenditures Ratio	Cash flow from Operating Activities / Capital Expenditures = $67,000 / $44,000 = 1.5	1.5