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Exercise 12-5 Evaluate risk ratios [LO3]
|
The 2012 income statement of Adrian Express reports sales of
$ 16 million, cost of goods sold of $9.6 million, and net income of $ 1. 6 million. Balance sheet information is provided in the following table. All amounts are in thousands. |
ADRIAN EXPRESS
Balance Sheets
December 31, 2012 and 2011
($ in 000s)
2012
2011
Assets
Current assets
:
Cash
600
$
760
Accounts receivable
1,400
1,000
Inventory
1,800
1,400
Long-term assets
4,800
4,240
Total assets
$
8,600
$
7,400
Liabilities and Stockholders’ Equity
Current liabilities
$
2,020
$
1,660
Long-term liabilities
2,300
2,400
Common stock
2,000
2,000
Retained earnings
2,280
1,340
Total liabilities and stockholders’ equity
$
8,600
$
7,400
|
Industry averages for the following four risk ratios are as follows: |
|
Average collection period |
25 days |
|
|
Average days in inventory |
60 days |
|
|
Current ratio |
2 to 1 |
|
|
Debt to equity ratio |
50% |
|
Required: |
|
1. |
Calculate the four risk ratios listed above for Adrian Express in 201 2. (Use 365 days in a year. Round your answers to 1 decimal place. Omit the “%” sign in your response.) |
|
Risk Ratios |
|||||||||
|
days |
|||||||||
|
to 1 |
|||||||||
|
% |
|
2. |
Do you think the company is more risky or less risky than the industry averages? |
||
The 2012 income statement of Adrian Express reports sales of $16 million, cost of goods sold of $9.6 million, and net income of $1.6 million. Balance sheet information is provided in the following table. All amounts are in thousands.
|
ADRIAN EXPRESS |
|||||
|
($ in 000s) |
2012 |
2011 |
|||
|
Cash |
|||||
| Accounts receivable |
1,400 |
||||
| Inventory | |||||
| Total assets | |||||
| Total liabilities and stockholders’ equity |
Industry averages for the following four risk ratios are as follows:
|
Gross profit ratio |
45 |
|||||
|
Return on assets |
25 | |||||
|
Profit margin |
15 |
|||||
|
Asset turnover |
2.5 |
times |
||||
|
Return on equity |
35 |
Required:
| 1. |
Calculate the five profitability ratios listed above for Adrian Express. (Round your answers to the nearest whole number. Omit the “%” sign in your response.) |
|
Profitability Ratios |
|||
|
% |
|||
|
times |
|||
| 2. |
Do you think the company is more profitable or less profitable than the industry averages? |
|
|
The balance sheet for Plasma Screens Corporation and additional information are provided below. |
|
PLASMA SCREENS CORPORATION |
|||
|
1 12,000 |
120,000 |
||
|
7 8,000 |
92,000 |
||
|
9 5,000 |
80,000 |
||
|
Investments |
4,000 |
2,000 |
|
|
Long-term assets: |
|||
|
Land |
480,000 |
||
|
Equipment |
90,000 |
670,000 |
|
|
Less: Accumulated depreciation |
(428,000) |
(268,000) |
|
|
1,131,000 |
1,17 6,000 |
||
| Liabilities and Stockholders’ Equity | |||
|
Current liabilities: |
|||
|
Accounts payable |
99,000 |
85,000 |
|
|
Interest payable |
6,000 | 12,000 | |
|
Income tax payable |
8,000 | 5,000 | |
|
Long-term liabilities: |
|||
|
No tes payable |
100,000 |
200,000 |
|
|
Stockholders’ equity: |
|||
|
Common stock |
700,000 |
||
|
Retained earnings |
218,000 |
174,000 |
|
|
1,131,000 |
|
Additional information for 2012: |
|
|
Net income is $69,000. |
|
|
Sales on account are $1,520,000. |
|
|
3. |
Cost of goods sold is $1,160,000. |
references
|
Section Break |
Exercise 12-7 Calculate risk ratios [LO3] |
3.
value:
2.00 points
Exercise 12-7 Part 1
Required:
|
Calculate the following risk ratios for 2012 (Round your answers to 1 decimal place. Omit the “%” sign in your response): |
| Risk Ratios | ||
|
a. |
Receivables turnover ratio |
|
|
b. |
Inventory turnover ratio |
|
|
c. |
Current ratio | |
|
d. |
Acid-test ratio |
|
|
e. |
Debt to equity ratio |
check my work
eBook Link
View Hint #1
references
|
Worksheet |
Difficulty: Hard |
||||
| Exercise 12-7 Part 1 |
Learning Objective: 12-03 Use ratios to analyze a company’s risk. |
4.
value:
1.00 points
Exercise 12-7 Part 2
|
When we compare two companies, can one have a higher current ratio while the other has a higher acid-test ratio? |
|
Yes |
| No |
Exercise 12-9 Calculate profitability ratios [LO4]
[The following information applies to the questions displayed below.]
|
The following condensed information is reported by Sporting Collectibles. |
|
2013 |
2012 | |||
|
Income Statement Information |
||||
|
Sales revenue |
10,400,000 |
8,400,000 |
||
|
Cost of goods sold |
6, 800,000 |
5, 900,000 |
||
|
Net income |
360,000 |
248,000 |
||
|
Balance Sheet Information |
||||
| Current assets |
1,600,000 |
1,500,000 |
||
|
2,200,000 |
1,900,000 |
|||
| Total assets |
3,800,000 |
3,400,000 |
||
|
1,200,000 |
900,000 | |||
| 800,000 | ||||
|
300,000 |
||||
| Total liabilities and stockholders’ equity |
3,800,000 |
references
| Exercise 12-9 Calculate profitability ratios [LO4] |
5.
value:
2.00 points
Exercise 12-9 Part 1
Required:
|
Calculate the following profitability ratios for 2013 (Round your answers to 1 decimal place. Omit the “%” sign in your response): |
| Profitability Ratios |
| Gross profit ratio |
| Return on assets |
| Profit margin |
| Asset turnover |
| Return on equity |
check my work
eBook Link View Hint #1
references
| Exercise 12-9 Part 1 |
Learning Objective: 12-04 Use ratios to analyze a companys profitability. |
6.
value:
1.00 points
Exercise 12-9 Part 2
|
Determine the amount of dividends paid to shareholders in 2013. (Omit the “$” sign in your response.) |
|
The amount of dividends paid |
$ |
check my work
eBook Link View Hint #1
references
| Exercise 12-9 Part 2 |
