Question
In: Finance
Trend Analysis - The following data pertain to Company B: (in thousands) Year 2 Year 1...
Trend Analysis - The following data pertain to Company B:
| (in thousands) | Year 2 | Year 1 |
| Revenue | $1,285,876 | $1,364,550 |
| Net income | 56,644 | 42,906 |
| Accounts receivable | 149,178 | 168,666 |
| Inventory | 158,541 | 179,688 |
| Total current assets | 670,337 | 649,903 |
| Total asset | 859,907 | 849,399 |
| Total current liabilities | 227,807 | 232,074 |
| Total long-term liabilities | 36,483 | 40,787 |
| Total stockholder equity | 595,617 | 576,538 |
Common-Size Income Statements - Company B reported the following income statements:
| COMPANY B | ||
| INCOME STATEMENT | ||
| FOR THE YEARS ENDED DECEMBER YEAR 2 AND YEAR 1 | ||
| (in thousands) | Year 2 | Year 1 |
| Sales revenue | $1,285,876 | $1,364,550 |
| Costs of goods sold | 682,954 | 743,817 |
| Gross profit | 602,922 | 620,733 |
| Selling and administrative expenses | 525,448 | 551,097 |
| Income from operations | 77,474 | 69,636 |
| Interest expense | (498) | (652) |
| Interest income | 903 | 2,371 |
| Other income | 3,506 | 5,455 |
| Income before income taxes | 81,385 | 76,810 |
| Income tax expense | 24,741 | 33,904 |
| Net income | 56,644 | 42,906 |
Using the data provided above, compute the following ratios for Company B for Years 1 and Years 2.
(a) Gross profit margin ratio
(b) Return on sales
(c) Asset turnover
(d) Return on assets
(e) Working capital
(f) Current ratio
(g) Accounts receivable turnover
(h) Inventory-on-hand period
(i) Long-term debt to assets
(j) Long-term debt to equity
(k) Times-interest-earned
(l) Return on equity
Please explain the formulas utilized to answer the financial ratios.
Solutions
Expert Solution
The answers are as follows: Year 1 Year 2
Gross Profit margin ratio 620733/1364550=0.4549 602922/1285876 =0.4689
Return on Sales 42906/1364550=3.144% 56644/1285876=4.4051%
Assets Turnover 1364550/854653=1.5966 1285876/854653=1.5046
(Average Assets have been used for calculating asset turnover)
Return on Assets 42906/849399=5.05% 56644/859907=6.5872%
Working Capital 649903-232074=417829 670337-227807=442530
Current Ratio 649903/232074=2.8004 670337/227807=2.9426
Accounts Receivable Turnover 1364550/158922=8.5863 1285876/158922=8.0912
(Average Receivable have been used to calculate the ratio.Since credit sales are not given the entire sales are assumed to be credit sales)
Inventory on hand period (169114.5/743817)*365=82.98 days (169114.5/682954)*365=90.38 days
Average Inventory has been used to calculate the ratio
Long Term Debt to Assets 40787/849399=0.048 36483/859907= 0.0424
Long Term Debt to Equity 40787/ 576538 = 0.0707 36483/595617=0.0613
Times Interest Earned 69636/652= 106.803 77474/498=155.57
Return on Equity 42906/576538=7.44% 56644/595617=9.51%
The formulas utilized to answer financial ratios are
- Current Ratio
- Accounts Receivable Turnover
- Long term debt to equity ratio
- Times interest earned
- Gross proft margin
- Return on assets
- Return on Equity
jeff jeffy answered 2 years agoRelated Solutions
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