Question

In: Accounting

Ratios (Appendix) Miller Company's condensed income statement for 2016 and December 31, 2016, balance sheet follow:...

Ratios (Appendix)

Miller Company's condensed income statement for 2016 and December 31, 2016, balance sheet follow:


Income Statement
Sales (net) $304,400
Cost of goods sold (183,600)
Gross profit $120,800
Operating expenses (82,000)
Operating income $38,800
Interest expense (7,000)
Income before income taxes $31,800
Income taxes (10,000)
Net income 21,800
Balance Sheet
Cash $8,200 Accounts payable $18,000
Receivables (net) 14,700 Other current liabilities 6,800
Inventory 19,300 Bonds payable, 10% 70,000
Property, plant, and equipment (net) 195,800 Common stock, $10 par 80,500
Additional paid-in capital on common stock 24,000
Retained earnings 38,700
Total Assets $238,000 Total Liabilities and Shareholders' Equity $238,000

Additional information: The common stock was outstanding the entire year and is selling for $16 per share at year-end. On January 1, 2016, the inventory was $21,500, the total assets were $224,000, the accounts payable were $18,800, and the total shareholders' equity was $130,800. The company operates on a 365-day business year.

Required

For the Miller Company, compute the following ratios:

1. Gross profit margin: (Round to two decimal places.) %
2. Operating profit margin: (Round to two decimal places.) %
3. Net profit margin: (Round to two decimal places.) %
4. Total asset turnover: (Round to two decimal places.) times
5. Return on total assets: (Round to two decimal places. Round tax rate to the nearest whole percent in your intermediate calculations.) %
6. Return on common equity: (Round to two decimal places.) %
7. Current ratio: (Round to one decimal place.) : 1
8. Inventory turnover: (in days) (Round to nearest whole day.) days
9. Payables turnover: (in days) (Round to nearest whole day. Do not round your intermediate calculations.) days

Solutions

Expert Solution

1. Gross profit margin = (Gross Profit/Net Sales) x 100 = ($120,800/$304,400) x 100 = 39.68%

2. Operating profit margin = (Operating Profit/Net Sales) x 100 = ($38,800/$304,400) x 100 = 12.74%

3. Net profit margin = (Net Profit/Net Sales) x 100 = ($21,800/$304,400) x 100 = 7.16%

4. Total asset turnover = Net sales/Average total assets = $304,400/(($224,000+$238,000)/2) = 0.91times

5. Return on total assets = (EBIT/Total net assets) x 100 = ($38,800/($238,000-$94,800)) x 100 = 27.09%

6. Return on common equity = (Net Income/Total Average Equity) x 100 = ($21,800/($130,800+$143,200)/2) x 100

= 15.91%

7. Current ratio = Current Assets/Current liabilities = $42,200/$24,800 = 1.7

8. Inventory turnover days = (365 x Average inventory)/Net sales = (365 x (($21,500+$19,300)/2))/$304,400

= 24 days

9. Payables turnover days = (365 x Average payables)/Net sales = (365 x (($18,800+$18,000)/2))/$304,400

22 days


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