Question

Question 1

The following are the financial statements of Rigolo Inc.

Balance sheet

	20116	2015
Assets       Current assets            Cash & cash equivalents            Account receivables            Inventory            Other current assets                Total current assets      L.T. Assets           PPE                Total Assets Liabilities & Shareholders’ Equity       Current liabilities             Accounts payable             Current maturities of notes payable             Accrued expenses             Other current liabilities                    Total current liabilities       L.T. Liabilities              Bank loans                     Total liabilities Shareholders’ equity        Common stock        Retained earnings                    Total shareholders equity                    Total shareholders equity & liab. The balance is well-balanced	4,100 2,733,148 1,389,390      13,901 4,140,539    322,586 4,463,125    276,556 1,834,858    151,817    128,632 2,391,863 1,824,764 4,216,627    46,499 199,999 246,498 4,463,125	3,100 1,941,002 1,468,257               0 3,412,359     60,640 3,472,999 256,419 337,881 169,067 161,905 925,272 2,400,000 3,325,272    46,499 101,228 147,727 3,472,999

Statement of income

	2016	2015
Revenue Cost of Good Sold      Gross profit on sales Operating expenses Repairs and maintenance Depreciation & Amortization Interest expense      Total expenses Net income before taxes Provision for income taxes Net income	$17,285,211 14,947,152     2,338,059    1,871,538         84,483         25,688       215,246    2,196,955       141,104         42,333         98,771	$13,999,979 11,920,400     2,079,579     1,529,231        107,123          24,410        255,003     1,915,767        163,812          65,525          98,287

Rigolo Inc, has paid $10,000 to its preferred shareholders in 2016

Tasks: (i) Compute the ROA

            (ii) Compute the ROCE

            (iii) Compute the Account Receivable Turnover

            (iv) Compute the Inventory Turnover

            (v) Compute the Basic EPS

            (vi) Compute the diluted EPS

Answer 1

i) Return on assets = net income / total assets x 100

For 2015: 98,287 / 3,472,999

= 2.83%

For 2016: 98,771 / 4,463,125

= 2.21%

ii) Return on Capital Employed = Net Income / Capital Employed

Capital Employed = Total Assets - Current Liabilities

OR

Shareholders' Equity + Long Term Liabilities

For 2015 = 147,727 + 2,400,000 = $2,547,727

For 2016 = 246,498 + 1,824,764 = $2,071,262

ROCE:

For 2015 = 98,287 / 2,547,727 = 3.85%

For 2016 = 98,771 / 2,071,262 = 4.77%

iii) Account Receivable Turnover = Revenue / Average Accounts Receivable

For 2015: 13,999,979 / 1,941,002 = 7.21 times

Note: Average accounts receivable for 2015 could not be calculated, therefore closing accounts receivable has been used instead.

For 2016: 17,285,211 / (1,941,002 + 2,733,148)/2

= 7.34 times

iv) Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory

For 2015: 11,920,400 / 1,468,257 = 8.12 times

For 2016: 14,947,152 / (1,468,257 + 1,389,390)/2

= 10.46 times

v) Basic EPS = Net income after preference dividend / Number of Equity Shares

vi) Diluted EPS = Net income after preference dividend / (Number of Equity shares + number of convertible shares and/or bonds)

Since the details of the number of Equity or convertible shares have not been provided, basic and diluted EPS cannot be calculated.