Question

Financial data for Joel de Paris, Inc., for last year follow:

Joel de Paris, Inc. Balance Sheet
	Beginning Balance		Ending Balance
Assets
Cash	$	136,000	$	126,000
Accounts receivable		337,000		482,000
Inventory		577,000		472,000
Plant and equipment, net		820,000		830,000
Investment in Buisson, S.A.		407,000		432,000
Land (undeveloped)		250,000		247,000
Total assets	$	2,527,000	$	2,589,000
Liabilities and Stockholders' Equity
Accounts payable	$	370,000	$	334,000
Long-term debt		1,036,000		1,036,000
Stockholders' equity		1,121,000		1,219,000
Total liabilities and stockholders' equity	$	2,527,000	$	2,589,000

   

Joel de Paris, Inc. Income Statement
Sales		$	3,780,000
Operating expenses			3,288,600
Net operating income			491,400
Interest and taxes:
Interest expense	125,000
Tax expense	202,000		327,000
Net income		$	164,400

The company paid dividends of $66,400 last year. The “Investment in Buisson, S.A.,” on the balance sheet represents an investment in the stock of another company.

Required:

1. Compute the company’s margin, turnover, and return on investment (ROI) for last year. (Round your answers to 1 decimal place.)

2. The board of directors of Joel de Paris, Inc., has set a minimum required rate of return of 20%. What was the company’s residual income last year?

Answer 1

Margin=	Operating Profit /Sales
Operating Profit	491,400.00
Sales	3,780,000.00
Margin=	491400/3780000
Margin=	13%

ROI	Net Income/net worth
Net Income Before Tax	366,400.00
Net Worth	1,219,000.00
ROI	30.1%

Resedual income	Operating Income - Cost of Capital*Average Operating Assets
Resedual income
Operating Profit	491,400.00
Cost of Capital	20%
Operating Assets:
	Ending	Beginning
Total Assets	2589000	2527000
Land	247000	250000
Investment	432000	407000
Operating Assets:	1910000	1870000
Average Operating Assets	1,890,000.00
Resedual income	491400-(1890000*20%)	113,400.00

Please note that which turnover ratio needs to be calculated is not mentioned in the question.So Turnove is not calculated. Please comment which ratio. I will surely help.

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