Question

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

2021 Income Statement
Net sales	$	8,800
Cost of goods sold		(6,200	)
Gross profit		2,600
Operating expenses		(2,000	)
Interest expense		(160	)
Income tax expense		(176	)
Net income	$	264

Comparative Balance Sheets
	Dec. 31
	2021				2020
Assets
Cash	$	560			$	460
Accounts receivable		560				360
Inventory		760				560
Property, plant, and equipment (net)		1,600				1,700
	$	3,480			$	3,080
Liabilities and Shareholders’ Equity
Current liabilities	$	860			$	610
Bonds payable		1,200				1,200
Common stock		560				560
Retained earnings		860				710
	$	3,480			$	3,080

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 perioddays

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

Data given in question:

Income Statement ($ in thousands) 2021
Net Sales	8,800
COGS	(6,200)
Gross Profit	2,600
Operating Expenses	(2,000)
Interest Expense	(160)
Income Tax Expense	(176)
Net Income	264

Comparative Balance Sheet ($ in thousands)
Particulars	Dec 31 2021	Dec 31 2020
Assets
Cash	560	460
Accounts Receivable	560	360
Inventory	760	560
Property Plant & Equipment (Net)	1,600	1,700
	3,480	3,080
Liabilities & Shareholder's Equity
Current Liabilities	860	610
Bonds Payable	1,200	1,200
Common Stock	560	560
Retained Earnings	860	710
	3,480	3,080

Formulas:

1)      Inventory Turnover Ratio= Cost of Goods Sold/Average Inventories

2)      Average days in inventory days= 365/Inventory turnover ratio

3)      Receivable Turnover Ratio= Net Credit Sales/Average Accounts receivables

4)      Average Collection period days= 365/Receivable Turnover Ratio

5)      Asset Turnover Ratio= Net Sales/Average Total Assets

6)      Profit Margin on sales (%)= Net Profit/Net Sales*100

7)      Return on assets (%)= Net Income/Total Assets*100

8)      Return on equity (%)= Net Income/Shareholder’s Equity*100

9)      Equity Multiplier Times= Total Assets/Shareholder’s Equity

10)   Return on equity (%) (DuPont framework)=(Net Income/Sales)*(Sales/Avg.total Assets)*(Total Assets/Total Equity)*100

Final Answer:

1)      Inventory Turnover Ratio=6200/[(760+560)/2]= 9.39 times

2)      Average days in inventory days= 365/9.39=38.85 days

3)      Receivable Turnover Ratio=8800/[(560+360)/2]=19.13 times

4)      Average Collection period days=365/19.13=19.08 days

5)      Asset Turnover Ratio=8800/[(3480+3080)/2]=2.68 times

6)      Profit Margin on sales (%)=

Net profit Margin= 264/8800=3.00%

Gross profit Margin= 2600/8800=29.55%

7)      Return on assets (%)= 264/3480*100=7.59%

8)      Return on equity (%)= 264/(560+860)*100=18.59%

9)      Equity Multiplier Times= 3480/(560+860)=2.45 times

10)   Return on equity (%) (DuPont framework)=(0.03*2.68*2.45)*100=19.73%