Profitability ratios
Real World Scenario
Ralph Lauren Corporation sells apparel through company-owned retail stores. Recent financial information for Ralph Lauren follows (in thousands):
| Fiscal Year 3 | Fiscal Year 2 | |||||
| Net income | $567,600 | $479,500 | ||||
| Interest expense | 18,300 | 22,200 | ||||
| Fiscal Year 3 | Fiscal Year 2 | Fiscal Year 1 | ||||
| Total assets (at end of fiscal year) | $4,981,100 | $4,648,900 | $4,356,500 | |||
| Total stockholders' equity (at end of fiscal year) | 3,304,700 | 3,116,600 | 2,735,100 | |||
Exercises Assume that the apparel industry average return on total assets is 8.0% and the average return on stockholders' equity is 10.0% for the year ended April 2, Year 3.
a. Determine the return on total assets for Ralph Lauren for fiscal Years 2 and 3. Round percentages to one decimal place.
b. Determine the return on stockholders' equity for Ralph Lauren for fiscal Years 2 and 3. Round percentages to one decimal place.
c. Evaluate the two-year trend for the profitability ratios determined in (a) and (b).
d. Evaluate Ralph Lauren's profit performance relative to the industry.
In: Accounting
O’Brien Company manufactures and sells one product. The following information pertains to each of the company’s first three years of operations: Variable costs per unit: Manufacturing: Direct materials $ 30 Direct labor $ 16 Variable manufacturing overhead $ 4 Variable selling and administrative $ 2 Fixed costs per year: Fixed manufacturing overhead $ 550,000 Fixed selling and administrative expenses $ 140,000 During its first year of operations, O’Brien produced 97,000 units and sold 70,000 units. During its second year of operations, it produced 80,000 units and sold 102,000 units. In its third year, O’Brien produced 86,000 units and sold 81,000 units. The selling price of the company’s product is $79 per unit.
3. Assume the company uses absorption costing and a FIFO inventory flow assumption (FIFO means first-in first-out. In other words, it assumes that the oldest units in inventory are sold first):
a. Compute the unit product cost for Year 1, Year 2, and Year 3.
b. Prepare an income statement for Year 1, Year 2, and Year 3.
In: Accounting
What is the net present value of the stadium project, which is a 3-year project where Fairfax Pizza would sell pizza in the baseball stadium? The project would involve an initial investment in equipment of 160,000 dollars today. To finance the project, Fairfax Pizza would borrow 160,000 dollars. The firm would receive 160,000 dollars from the bank today and would pay the bank 206,400 dollars in 3 years (consisting of an interest payment of 46,400 dollars and a principal payment of 160,000 dollars). Cash flows from capital spending would be 0 dollars in year 1, 0 dollars in year 2, and 10,000 dollars in year 3. Operating cash flows are expected to be 92,800 dollars in year 1, 91,200 dollars in year 2, and -51,200 dollars in year 3. The cash flow effects from the change in net working capital are expected to be -10,000 dollars at time 0; -9,000 dollars in year 1; 10,000 dollars in year 2; and 9,000 dollars in year 3. The tax rate is 10 percent. The cost of capital is 17.46 percent and the interest rate on the loan would be 8.86 percent.
In: Finance
O’Brien Company manufactures and sells one product. The following information pertains to each of the company’s first three years of operations:
| Variable costs per unit: | ||
| Manufacturing: | ||
| Direct materials | $26 | |
| Direct labor | $18 | |
| Variable manufacturing overhead | $5 | |
| Variable selling and administrative | $3 | |
| Fixed costs per year: | ||
| Fixed manufacturing overhead | $530,000 | |
| Fixed selling and administrative expenses | $170,000 | |
During its first year of operations, O’Brien produced 93,000 units and sold 77,000 units. During its second year of operations, it produced 78,000 units and sold 89,000 units. In its third year, O’Brien produced 84,000 units and sold 79,000 units. The selling price of the company’s product is $78 per unit.
Required:
1. Assume the company uses variable costing and a FIFO inventory
flow assumption (FIFO means first-in first-out. In other words, it
assumes that the oldest units in inventory are sold
first):
a. Compute the unit product cost for Year 1, Year 2, and Year 3.
b. Prepare an income statement for Year 1, Year 2, and Year 3.
In: Accounting
You have been engaged to review the financial statements of
Tamarisk Corporation. In the course of your examination, you
conclude that the bookkeeper hired during the current year is not
doing a good job. You notice a number of irregularities as
follows.
| 1. | Year-end wages payable of $3,590 were not recorded because the bookkeeper thought that “they were immaterial.” | |
| 2. | Accrued vacation pay for the year of $33,400 was not recorded because the bookkeeper “never heard that you had to do it.” | |
| 3. | Insurance for a 12-month period purchased on November 1 of this year was charged to insurance expense in the amount of $2,436 because “the amount of the check is about the same every year.” | |
| 4. | Reported sales revenue for the year is $2,297,020. This includes all sales taxes collected for the year. The sales tax rate is 6%. Because the sales tax is forwarded to the state’s Department of Revenue, the Sales Tax Expense account is debited. The bookkeeper thought that “the sales tax is a selling expense.” At the end of the current year, the balance in the Sales Tax Expense account is $114,320. |
Prepare the necessary correcting entries, assuming that Tamarisk
uses a calendar-year basis. The books for the current year have not
been closed.
In: Accounting
Project cash flow and NPV. The managers of Classic Autos Incorporated plan to manufacture classic Thunderbirds (1957 replicas). The necessary foundry equipment will cost a total of $3 comma 900 comma 000 and will be depreciated using a five-year MACRS life, LOADING.... The sales manager has an estimate for the sale of the classic Thunderbirds. The annual sales volume will be as follows: Year one: 230 Year four: 370 Year two: 270 Year five: 310 Year three: 360 If the sales price is $30 comma 000 per car, variable costs are $18 comma 000 per car, and fixed costs are $1 comma 400 comma 000 annually, what is the annual operating cash flow if the tax rate is 30%? The equipment is sold for salvage for $500 comma 000 at the end of year five. Net working capital increases by $500 comma 000 at the beginning of the project (year 0) and is reduced back to its original level in the final year. Find the internal rate of return for the project using the incremental cash flows. First, what is the annual operating cash flow of the project for year 1?
In: Finance
O’Brien Company manufactures and sells one product. The following information pertains to each of the company’s first three years of operations:
| Variable costs per unit: | ||
| Manufacturing: | ||
| Direct materials | $ | 30 |
| Direct labor | $ | 16 |
| Variable manufacturing overhead | $ | 4 |
| Variable selling and administrative | $ | 2 |
| Fixed costs per year: | ||
| Fixed manufacturing overhead | $ | 550,000 |
| Fixed selling and administrative expenses | $ | 140,000 |
During its first year of operations, O’Brien produced 97,000 units and sold 70,000 units. During its second year of operations, it produced 80,000 units and sold 102,000 units. In its third year, O’Brien produced 86,000 units and sold 81,000 units. The selling price of the company’s product is $79 per unit.
3. Assume the company uses absorption costing and a FIFO inventory flow assumption (FIFO means first-in first-out. In other words, it assumes that the oldest units in inventory are sold first):
a. Compute the unit product cost for Year 1, Year 2, and Year 3.
b. Prepare an income statement for Year 1, Year 2, and Year 3.
In: Accounting
O’Brien Company manufactures and sells one product. The following information pertains to each of the company’s first three years of operations:
| Variable costs per unit: | ||
| Manufacturing: | ||
| Direct materials | $ | 26 |
| Direct labor | $ | 18 |
| Variable manufacturing overhead | $ | 5 |
| Variable selling and administrative | $ | 2 |
| Fixed costs per year: | ||
| Fixed manufacturing overhead | $ | 530,000 |
| Fixed selling and administrative expenses | $ | 120,000 |
During its first year of operations, O’Brien produced 91,000 units and sold 74,000 units. During its second year of operations, it produced 80,000 units and sold 92,000 units. In its third year, O’Brien produced 87,000 units and sold 82,000 units. The selling price of the company’s product is $72 per unit.
Case 6-29 Part-3
3. Assume the company uses absorption costing and a FIFO inventory flow assumption (FIFO means first-in first-out. In other words, it assumes that the oldest units in inventory are sold first):
a. Compute the unit product cost for Year 1, Year 2, and Year 3.
b. Prepare an income statement for Year 1, Year 2, and Year 3.
In: Accounting
Chubbyville purchases a delivery van for $23,100. Chubbyville estimates that at the end of its four-year service life, the van will be worth $1,900. During the four-year period, the company expects to drive the van 109,000 miles. Calculate annual depreciation for the four year life of the van using straight line, double declining, and activity based.
1. Straight Line Method
What is Depreciation expense?
2. Double Declining Balance
| Year | Depreciation Expense | Accumulated Depreciation | Book Value |
| 1 | |||
| 2 | |||
| 3 | |||
| 4 | |||
| Total |
3. Activity Based
Actual miles driven each year were...
19,000 miles in Year 1
31000 miles in Year 2
21000 miles in Year 3
25000 miles in Year 4
Note that actual total miles of 96,000 fall short of expectations by 13,000 miles.
| Year | Depreciation Expense | Accumulated Depreciation | Book Value |
| 1 | |||
| 2 | |||
| 3 | |||
| 4 | |||
| Total |
PLEASE, SHOW YOUR CALCULATION!
I need to know how to calculate each of them. You may just send the picture of your note. You don't have to type each calculation.
In: Accounting
Ratio of Liabilities to Stockholders' Equity and Times Interest Earned
The following data were taken from the financial statements of Hunter Inc. for December 31 of two recent years:
| Current Year | Previous Year | |||
| Accounts payable | $552,000 | $162,000 | ||
| Current maturities of serial bonds payable | 370,000 | 370,000 | ||
| Serial bonds payable, 10% | 1,520,000 | 1,890,000 | ||
| Common stock, $1 par value | 80,000 | 100,000 | ||
| Paid-in capital in excess of par | 900,000 | 900,000 | ||
| Retained earnings | 3,090,000 | 2,460,000 | ||
The income before income tax was $529,200 and $463,100 for the current and previous years, respectively.
a. Determine the ratio of liabilities to stockholders' equity at the end of each year. Round to one decimal place.
| Current year | |
| Previous year |
b. Determine the times interest earned ratio for both years. Round to one decimal place.
| Current year | |
| Previous year |
c. The ratio of liabilities to stockholders' equity has and the times interest earned ratio has from the previous year. These results are the combined result of a income before income taxes and interest expense in the current year compared to the previous year.
In: Accounting