Question

Changes in Various Ratios
Presented below is selected information for Brimmer Company:

	2013	2012
Sales revenue	$913,000	$840,000
Cost of goods sold	578,000	542,000
Interest expense	23,000	20,000
Income tax expense	30,000	24,000
Net income	64,000	52,000
Cash flow from operating activities	68,000	55,000
Capital expenditures	45,000	45,000
Accounts receivable (net), December 31	129,000	120,000
Inventory, December 31	199,000	160,000
Stockholders' equity, December 31	453,000	400,000
Total assets, December 31	733,000	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%			%
2. Return on assets	8.3%			%
3. Return on sales	6.2%			%
4. Return on common stockholders' equity
(no preferred stock was outstanding)	13.9%			%
5. Accounts receivable turnover	8.0
6. Average collection period	45.6	days		days
7. Inventory turnover	3.6
8. Times-interest-earned ratio	4.8
9. Operating-cash-flow-to-capital-expenditures ratio	1.2

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Answer 1

Answer: Calculating Ratios for 2013-

(1): Gross profit margin ratio = (Gross profit / Sales) * 100

Gross profit margin = Sales - Cost of Goods sold

Gross profit margin: 913000 - 578000 = $335000

Gross profit margin ratio: (335000 / 913000) * 100 = 36.7%

(2): Return on Assets = (Net Profit / Total assets) * 100

ROA: (64000 / 733000) * 100 = 8.7%

(3): Return on sale = (Net profit / Sales) * 100

Return on sales: (64000 / 913000) * 100 = 7%

(4): Return on common stockholder's equity = (Net Profit / Common stockholder's equity) * 100

ROE = (64000 / 453000) * 100 = 14.1%

(5): Account receivable turnover = Net credit sales / Average Account receivables

Average Account receivables = (Ending receivable + Beginning receivable) / 2

Average Account receivables: (129000 + 120000) / 2 = $124500

Account receivable turnover: 913000 / 124500 = 7.3 times

(6): Average collection period = 365 / Average account receivables

Average collection period: 365 / 7.33 = 49.8 days

(7): Inventroy turnover = Cost of goods sold / Average inventory

Average inventory = (Ending inventory +Beginning inventory) / 2

Average inventory: (199000+160000)/2 = 179500

Inventroy turnover: 578000 / 179500 = 3.2 times

(8): Times-interest-earned ratio = Earning before interest and tax/ Interest

EBIT = Net income + Interest + Tax

EBIT: 64000 + 23000 + 30000 = 117000

Times-interest-earned ratio: 117000 / 23000 = 5.1 times