Question

Selected data from the financial statements of Italian Marble Co. and Brazil Stone Products for the year just ended follow. Assume that for both companies, dividends declared were equal in amount to net earnings during the year, and therefore stockholders' equity did not change. The two companies are in the same line of business.

	Italian Marble Co.				Brazil Stone Products
Total liabilities	$	200,000			$	100,000
Total assets		800,000				400,000
Sales (all on credit)		1,850,000				1,060,000
Average inventory		240,000				140,000
Average receivables		200,000				100,000
Gross profit as a percentage of sales		40	%			30	%
Operating expenses as a percentage of sales		36	%			25	%
Net income as a percentage of sales		3	%			5	%

  

a. Compute the net income for each company.

b. Compute the net income as a percentage of stockholders' equity for each company.

c. Compute the accounts receivable turnover for each company.

d. Compute the inventory turnover for each company.

e. Which company is in a stronger financial position?

Compute the net income for each company.

	Italian Marble Co. Brazil Stone Products Net income

Compute the net income as a percentage of stockholders' equity for each company. (Round your answers to the nearest whole number.)

	Italian Marble Co. Brazil Stone Products Net income as a percentage of stockholders' equity 9 % %

Compute the accounts receivable turnover for each company. (Round your answers to the nearest whole number.)

	Italian Marble Co. Brazil Stone Products Accounts receivable turnover 9selected answer correct times selected answer incorrect times

Compute the inventory turnover for each company. (Round your answers to 1 decimal place.)

	Italian Marble Co. Brazil Stone Products Inventory turnover selected answer incorrect times selected answer incorrect times

Answer 1

Solution:

S. No.	Particulars	Italian Marble Co	Brazil Stone Products
a	Sales	$1,850,000.00	$1,060,000.00
	Net Income as percentage of Sales	3%	5%
	Net Income(Sales * NI Percentage)	$55,500.00	$53,000.00
b	Net Income	$55,500.00	$53,000.00
	Total Assets	$800,000.00	$400,000.00
	Total Liabilities	$200,000.00	$100,000.00
	Stock holders equity (Assets - Liabilities)	$600,000.00	$300,000.00
	Net Income as percentage of stock holder's equity (Net Income / Stockholder equity*100)	9%	18%
c	Sales	$1,850,000.00	$1,060,000.00
	Average Receivables	$200,000.00	$100,000.00
	Accounts Receivable Turnover (Sales / Average Receivables)	9.25 Times	10.60 Times
d	Sales	$1,850,000.00	$1,060,000.00
	Gross Profit as a percentage of Sales	40%	30%
	Gross Profit	$740,000.00	$318,000.00
	Cost of goods Sold (Sales - Gross Profit)	$1,110,000.00	$742,000.00
	Average Inventory	$240,000.00	$140,000.00
	Inventory Turnover Ratio (COGS / Average Inventory)	4.625 Times	5.30 Times

e. Net profit percentage, return on stock holder equity, accounts receivable turnover ratio and inventory turnover ratio of Brazil stone product is much better than Italian marble company. Hence Brazil stone product is in a stronger financial position.