Question

Given the financial statements for Jones Corporation and Smith Corporation:  

JONES CORPORATION
Current Assets					Liabilities
Cash			$	21,400	Accounts payable	$	121,000
Accounts receivable				86,100	Bonds payable (long term)		89,700
Inventory				55,100
Long-Term Assets					Stockholders' Equity
Gross fixed assets	$	526,000			Common stock	$	150,000
Less: Accumulated depreciation		151,300			Paid-in capital		70,000
Net fixed assets*				374,700	Retained earnings		106,600
Total assets			$	537,300	Total liabilities and equity	$	537,300

    

Sales (on credit)	$	1,803,000
Cost of goods sold		760,000
Gross profit	$	1,043,000
Selling and administrative expense†		333,000
Depreciation expense		53,300
Operating profit	$	656,700
Interest expense		8,300
Earnings before taxes	$	648,400
Tax expense		98,700
Net income	$	549,700

*Use net fixed assets in computing fixed asset turnover.
†Includes $16,200 in lease payments.
  

SMITH CORPORATION
Current Assets					Liabilities
Cash			$	37,000	Accounts payable	$	83,800
Marketable securities				10,200	Bonds payable (long term)		278,000
Accounts receivable				75,900
Inventory				79,800
Long-Term Assets					Stockholders' Equity
Gross fixed assets	$	566,000			Common stock	$	75,000
Less: Accumulated depreciation		259,500			Paid-in capital		30,000
Net fixed assets*				306,500	Retained earnings		42,600
Total assets			$	509,400	Total liabilities and equity	$	509,400

*Use net fixed assets in computing fixed asset turnover.

   

SMITH CORPORATION
Sales (on credit)	$	1,170,000
Cost of goods sold		659,000
Gross profit	$	511,000
Selling and administrative expense†		292,000
Depreciation expense		50,300
Operating profit	$	168,700
Interest expense		26,300
Earnings before taxes	$	142,400
Tax expense		54,900
Net income	$	87,500

^†Includes $16,200 in lease payments.
  
a. Compute the following ratios. (Use a 360-day year. Do not round intermediate calculations. Input your profit margin, return on assets, return on equity, and debt to total assets answers as a percent rounded to 2 decimal places. Round all other answers to 2 decimal places.)

Jones Corp. Smith Corp. Profit margin % % Return on assets (investments) % % Return on equity % % Receivable turnover times times Average collection period days days Inventory turnover times times Fixed asset turnover times times Total asset turnover times times Current ratio times times Quick ratio times times Debt to total assets % % Times interest earned times times Fixed charge coverage times times

Answer 1

Answer:

For Jones Corp.:

Profit Margin = Net Income / Sales *100
Profit Margin = $549,700 / $1,803,000 *100
Profit Margin = 30.49%

Return on Assets = Net Income / Total Assets *100
Return on Assets = $549,700 / $537,300 *100
Return on Assets = 102.31%

Stockholders Equity = Common Stock + Paid in Capital + Retained Earnings
Stockholders Equity = $150,000 + $70,000 + $106,600
Stockholders Equity = $326,600

Return on Equity = Net Income / Stockholders Equity *100
Return on Equity = $549,700 / $326,600 *100
Return on Equity = 168.31%

Receivable Turnover = Sales / Accounts Receivable
Receivable Turnover = $1,803,000 / $86,100
Receivable Turnover = 20.94 times

Average Collection Period = 360 days / Receivable Turnover
Average Collection Period = 360 / 20.94
Average Collection Period = 17.19 days

For Smith Corp.:

Profit Margin = Net Income / Sales *100
Profit Margin = $87,500 / $1,170,000 *100
Profit Margin = 7.48%

Return on Assets = Net Income / Total Assets *100
Return on Assets = $87,500 / $509,400 *100
Return on Assets = 17.18%

Stockholders Equity = Common Stock + Paid in Capital + Retained Earnings
Stockholders Equity = $75,000 + $30,000 + $42,600
Stockholders Equity = $147,600

Return on Equity = Net Income / Stockholders Equity *100
Return on Equity = $87,500 / $147,600 *100
Return on Equity = 59.28%

Receivable Turnover = Sales / Accounts Receivable
Receivable Turnover = $1,170,000 / $75,900
Receivable Turnover = 15.42 times

Average Collection Period = 360 days / Receivable Turnover
Average Collection Period = 360 /15.42
Average Collection Period = 23.35 days