Question

5.

Financial statements for Askew Industries for 2021 are shown below (in thousands):

2021 Income Statement
Net sales	$	9,900
Cost of goods sold		(6,525	)
Gross profit		3,375
Operating expenses		(2,325	)
Interest expense		(290	)
Income tax expense		(304	)
Net income	$	456

Comparative Balance Sheets
	Dec. 31
	2021				2020
Assets
Cash	$	690			$	590
Accounts receivable		690				490
Inventory		890				690
Property, plant, and equipment (net)		2,900				3,000
	$	5,170			$	4,770
Liabilities and Shareholders’ Equity
Current liabilities	$	1,640			$	1,390
Bonds payable		1,850				1,850
Common stock		690				690
Retained earnings		990				840
	$	5,170			$	4,770

Required:
Calculate the following ratios for 2021. (Consider 365 days a year. Do not round intermediate calculations and round your final answers to 2 decimal places.)

  
1.   Inventory turnover ratio      
2.   Average days in inventory       days
3.   Receivables turnover ratio      
4.   Average collection period       days
5.   Asset turnover ratio      
6.   Profit margin on sales       %
7.   Return on assets       %
8.   Return on equity       %
9.   Equity multiplier       times
10.   Return on equity (using the DuPont framework)       %

Answer 1

1	Inventory turnover ratio=	COGS
		Avg stock
	Avg stock=	Op stock+Closing stock
		2
	Avg stock=	690+890
		2
	Avg stock=	790
	Inventory turnover ratio=	6525
		790
	Inventory turnover ratio=	8.26	times
2	Average days in inventory=	Average inventory	*365 days
		COGS
	Avg stock=	790
	Average days in inventory=	790	*365 days
		6525
		44.19	days
3	Receivables turnover ratio=	Net Credit Sales
		Avg receivables
	Avg receivables=	Op receivables+Closing receivables
		2
	Avg receivables=	690+490
		2
	Avg receivables=	590
	Receivables turnover ratio=	9900
		590
	Receivables turnover ratio=	16.78	times
4	Average collection period=	Avg receivables	*365
		Net Credit Sales	Net Credit Sales
	Avg receivables=	590
	Average collection period=	590	*365
		9900
	Average collection period=	21.75	days
5	Asset turnover ratio=	Net sales
		Average assets
	Avg assets=	Op assets+Closing assets
		2
	Avg assets=	5170+4770
		2
	Avg assets=	4970
	Asset turnover ratio=	9900
		4970
	Asset turnover ratio=	1.99	times
6	Profit margin on sales=	Net income	*100
		Sales
	Profit margin on sales=	456	*100
		9900
	Profit margin on sales=	4.61%
7	Return on assets=	Net income	*100
		Total assets
	Return on assets=	456	*100
		5170
	Return on assets=	8.82%
8	Return on equity=	Net income	*100
		Total equity
	Return on assets=	456	*100
		690+990
	Return on assets=	456	*100
		1680
	Return on assets=	27.14%
9	Equity multiplier=	Total assets
		Total equity
	Equity multiplier=	5170
		1680
	Equity multiplier=	3.08	times
10	Return on equity (using the DuPont framework)=	Net Profit Margin*AT*EM
	AT = Asset turnover
	EM=Equity Multiplier
	Return on equity (using the DuPont framework)=	4.61%*1.99*3.08
	Return on equity (using the DuPont framework)=	28.26%

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