Question

Catering Co. C

Income Statement

For the year ended 31 Mar 20X5

($ in million)

                                    Net sales                                              $7,356

                                    Less: Cost of food sold                        2,402

                                    Less: other expenses                             4,174

                                    Earnings before interest and taxes          780

                                    Less: Taxes                                          193

                                    Net profit                                             $587

Catering Co. C

20X4 and 20X5

Statement of Financial Position

($ in million)

                                         20X4      20X5                                                          20X4      20X5

        Cash                     $ 1,149   $   1,236        Accounts payable                      $774      $820

        Accounts rec.                 80           143        Long-term debt                             61           67

        Inventory                     212           228        Share capital                             1,348      1,112

        Total                       $1,441      $1,607        Retained earnings                     2,384      2,564

        Net fixed assets         3,126        2,955       

        Total assets             $4,567      $4,562        Total liabilities & equity           $4,567   $4,562

Calculate the net profit margin in % for 20X5 in .

Calculate how many days on average it takes Catering Co. C to sell their inventory in .

Calculate how many days on average it takes Catering Co. C to collect its receivables in .

Calculate how many dollars of sales Catering Co. C generates from every dollar of total assets in .

Calculate Catering Co. C’s debt ratio for 20X5 in .

Calculate Catering Co. C's earnings per share in  if it has 1,000,000,000 shares outstanding.

Calculate Catering Co. C's price earnings ratio in  if the share price is $21.45.

Calculate Catering Co. C's return on equity in 20X5 in .

Suggest TWO ways to improve the return on equity under the DuPont system in .

Answer 1

1. Net profit margin % = ( Net profit / Net sales ) *100 = ( $587 million / $7,356 million ) * 100 = 7.98%

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

where, inventory turnover ratio = Cost of goods sold / Average inventory = $2,402 million / [ ( 212 million + 228 million ) / 2 ] = 10.92 times.

Average days in inventory = 365 days / 10.92 times = 33.42 days.

3. Average days to collect receivables = 365 days / ( Average receivables / Net credit sales ) = 365 days / [ { ( 80 million + 143 million ) / 2 } / $7,356 million ] = 5.53 days.

4. Dollar sales generated by assets = Net sales / Average total assets = $7,356 million / [ ( $4,567 million + $4,562 million ) / 2 ] = 1.61

5. Debt ratio = Total liabilities / Total assets = Long term debt as on 31 March 20X5 / Total assets as on 31 March 20X5 = $67 million / 4,562 million = 1.47%.

6. Earnings per share = Net profit / Total shares outstanding = $587,000,000 / 1,000,000,000 shares = $0.587 per share.

7.Price earnings ratio = market price per share / earnings per share = $21.45 / $0.587 = 36.54 times.

8.Return on equity in 20X5 = Net Income / Shareholders' equity = $587 million / ( $1,112 million + $2,564 million) = 15.97%