Question

In: Accounting

Gross Profit Percentage The following financial data is from Hi-Tech Instruments' financial statements (thousands of dollars,...

Gross Profit Percentage
The following financial data is from Hi-Tech Instruments' financial statements (thousands of dollars, except earnings per share.)

2016
Sales revenue $209,500
Cost of goods sold 125,500
Net income 8,300
Dividends 2,600
Earnings per share 4.15
Hi-Tech Instruments, Inc.
Balance Sheet

(Thousands of Dollars)

Dec. 31, 2016 Dec. 31, 2015
Assets
Cash $18,300 $18,000
Accounts receivable (net) 46,000 41,000
Inventory 39,500 43,700
Total current assets 103,800 102,700
Plant assets (net) 52,600 50,500
Other assets 15,600 13,800
Total assets $172,000 $167,000
Liabilities and Stockholders' Equity
Notes payable-banks $6,000 $6,000
Accounts payable 22,500 18,700
Accrued liabilities 16,500 21,000
Total current liabilities 45,000 45,700
9% Bonds payable 40,000 40,000
Total liabilities 85,000 85,700
Common stock, $25 par value (2,000,000 shares) 50,000 50,000
Retained earnings 37,000 31,300
Total stockholders' equity 87,000 81,300
Total liabilities and stockholders' equity $172,000 $167,000
Industry Average Ratios for Competitors
Quick ratio 1.3
Current ratio 2.4
Accounts receivable turnover 5.9 times
Inventory turnover 3.5 times
Debt-to-equity ratio 0.73
Gross profit percentage 42.8 percent
Return on sales 4.5 percent
Return on assets 7.6 percent

Calculate the company's gross profit percentage for 2016.

Round answer to one decimal place. (Ex.: 0.2345 = 23.5%)

Answer%

Compare the result to the industry average.

Hi-Tech Instruments' ratio is higher than the industry average.

Hi-Tech Instruments' ratio is lower than the industry average.

Solutions

Expert Solution

Calculation of Gross Profit Percentage of Hi-Tech Instruments for the year 2016

Gross Profit                  = Sales – Cost of Goods sold

                             = $ 2,09,500 - $ 1,25,500

                             = $ 84,000

Gross Profit Percentage = [ $ 84,000 / $ 2,09,500 ] * 100

                                       = 40.10 %

Comparison of Gross Profit Percentage to the industry average

Hi-Tech Instruments GP Ratio = 40.10%

Industry Average GP Ratio     = 42.80%

Conclusion : Hi-Tech Instruments' ratio is lower than the industry average.


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