Some recent financial statements for Smolira Golf Corp. follow. Use this information to work Problems 26 through 30.
SMOLIRA GOLF CORP. 2015 Income Statement | ||
Sales | $422,045 | |
Cost of goods sold | 291,090 | |
37,053 | ||
Earnings before interest and taxes | $ 93,902 | |
Interest paid | 16,400 | |
Taxable income | $ 77,502 | |
Taxes (35%) | 27,126 | |
Net income | $ 50,376 | |
Dividends | $20,000 | |
|
30,376 |
26. Calculating Financial Ratios [LO2] Find the following financial ratios for Smolira Golf Corp. (use year-end figures rather than average values where appropriate):
Short-term solvency ratios:
a. Current ratio | ____________________ |
b. Quick ratio | ____________________ |
c. Cash ratio | ____________________ |
Asset utilization ratios:
d. Total asset turnover | ____________________ |
e. Inventory turnover | ____________________ |
f. Receivables turnover | ____________________ |
Long-term solvency ratios:
g. Total debt ratio | ____________________ |
h. Debt–equity ratio | ____________________ |
i. Equity multiplier | ____________________ |
j. Times interest earned ratio | ____________________ |
k. Cash coverage ratio | ____________________ |
Profitability ratios:
l. Profit margin | ____________________ |
m. |
____________________ |
n. |
____________________ |
a)
To find: The financial current ratio of Company SG
Introduction:
The process of analyzing and calculating the financial ratios for the evaluation of the performance of the firm and to find the actions that are necessary to improve the firm’s performance is ratio analysis.
Answer to Problem 26QP
The current ratio for 2014 and 2015 is 1.10 times and 1.15 times.
Explanation of Solution
Given information:
The balance sheet of the Company SG shows the following information:
- The total assets for the year 2014 is $425,239 and for 2015 is $478,319
- The total liabilities and equity for the year 2014 is 425,239 and for 2015 is $478,319
- The cash at the beginning and end of the year are $26,450 and $29,106 respectively.
- The accounts receivable for the year 2014 and 2015 are $13,693 and $18,282 respectively.
- The inventory for the year 2014 and 2015 are $27,931 and $32,586 respectively.
- The fixed asset for the year 2014 and 2015 are $357,165 and $398,345 respectively.
- The accounts payable for the year 2014 and 2015 are $30,602 and $35,485 respectively.
- The other current liabilities for the year 2014 and 2015 are $15,280 and $20,441 respectively.
- The notes payable for the year 2014 and 2015 are $15,840 and $13,500 respectively.
- The long-term debt for the year 2014 and 2015 are $95,000 and $110,000.
- The common stock and paid in surplus for 2014 is $45,000 and for 2015 is $45,000
- The accumulated retained earnings for 2014 is $223,517 and 2015 is $253,893
- The net income is $50,376.
- The depreciation is $37,053.
- The dividend paid is $20,000.
- The cost of goods sold amounts to $291,090
- The sales is $422,045
- The earnings before interest and taxes is $93,902
- The interest paid is $16,400
- The retained earnings is $30,376
- The taxable income is $77,502
Short-term solvency ratios:
Formula to calculate the current ratio:
Compute the current ratio:
Hence, the current ratio for 2014 is 1.10 times
Hence, the current ratio for 2015 is 1.15 times
b)
To find: The financial quick ratio of Company SG
Introduction:
The process of analyzing and calculating the financial ratios for the evaluation of the performance of the firm and to find the actions that are necessary to improve the firm’s performance is ratio analysis.
Answer to Problem 26QP
The quick ratio for 2014 and 2015 is 0.65 and 0.68 times.
Explanation of Solution
Given information:
The balance sheet of the Company SG shows the following information:
- The total assets for the year 2014 is $425,239 and for 2015 is $478,319
- The total liabilities and equity for the year 2014 is 425,239 and for 2015 is $478,319
- The cash at the beginning and end of the year are $26,450 and $29,106 respectively.
- The accounts receivable for the year 2014 and 2015 are $13,693 and $18,282 respectively.
- The inventory for the year 2014 and 2015 are $27,931 and $32,586 respectively.
- The fixed asset for the year 2014 and 2015 are $357,165 and $398,345 respectively.
- The accounts payable for the year 2014 and 2015 are $30,602 and $35,485 respectively.
- The other current liabilities for the year 2014 and 2015 are $15,280 and $20,441 respectively.
- The notes payable for the year 2014 and 2015 are $15,840 and $13,500 respectively.
- The long-term debt for the year 2014 and 2015 are $95,000 and $110,000.
- The common stock and paid in surplus for 2014 is $45,000 and for 2015 is $45,000
- The accumulated retained earnings for 2014 is $223,517 and 2015 is $253,893
- The net income is $50,376.
- The depreciation is $37,053.
- The dividend paid is $20,000.
- The cost of goods sold amounts to $291,090
- The sales is $422,045
- The earnings before interest and taxes is $93,902
- The interest paid is $16,400
- The retained earnings is $30,376
- The taxable income is $77,502
Formula to calculate Quick ratio:
Compute the quick ratio:
Hence, the quick ratio for 2014 is 0.65 times
Hence, the quick ratio for 2015 is 0.68 times.
c)
To find: The financial cash ratio of Company SG
Introduction:
The process of analyzing and calculating the financial ratios for the evaluation of the performance of the firm and to find the actions that are necessary to improve the firm’s performance is ratio analysis.
Answer to Problem 26QP
The cash ratio for 2014 and 2015 is 0.43 times and 0.42 times.
Explanation of Solution
Given information:
The balance sheet of the Company SG shows the following information:
- The total assets for the year 2014 is $425,239 and for 2015 is $478,319
- The total liabilities and equity for the year 2014 is 425,239 and for 2015 is $478,319
- The cash at the beginning and end of the year are $26,450 and $29,106 respectively.
- The accounts receivable for the year 2014 and 2015 are $13,693 and $18,282 respectively.
- The inventory for the year 2014 and 2015 are $27,931 and $32,586 respectively.
- The fixed asset for the year 2014 and 2015 are $357,165 and $398,345 respectively.
- The accounts payable for the year 2014 and 2015 are $30,602 and $35,485 respectively.
- The other current liabilities for the year 2014 and 2015 are $15,280 and $20,441 respectively.
- The notes payable for the year 2014 and 2015 are $15,840 and $13,500 respectively.
- The long-term debt for the year 2014 and 2015 are $95,000 and $110,000.
- The common stock and paid in surplus for 2014 is $45,000 and for 2015 is $45,000
- The accumulated retained earnings for 2014 is $223,517 and 2015 is $253,893
- The net income is $50,376.
- The depreciation is $37,053.
- The dividend paid is $20,000.
- The cost of goods sold amounts to $291,090
- The sales is $422,045
- The earnings before interest and taxes is $93,902
- The interest paid is $16,400
- The retained earnings is $30,376
- The taxable income is $77,502
Formula to calculate the cash ratio:
Compute the cash ratio:
Hence, the cash ratio for 2014 is 0.43 times
Hence, the cash ratio for 2015 is 0.42 times
d)
To find: The financial total asset turnover ratio of Company SG
Introduction:
The process of analyzing and calculating the financial ratios for the evaluation of the performance of the firm and to find the actions that are necessary to improve the firm’s performance is ratio analysis.
Answer to Problem 26QP
The total asset turnover ratio is 0.88 times.
Explanation of Solution
Asset utilization ratios:
Given information:
The balance sheet of the Company SG shows the following information:
- The total assets for the year 2014 is $425,239 and for 2015 is $478,319
- The total liabilities and equity for the year 2014 is 425,239 and for 2015 is $478,319
- The cash at the beginning and end of the year are $26,450 and $29,106 respectively.
- The accounts receivable for the year 2014 and 2015 are $13,693 and $18,282 respectively.
- The inventory for the year 2014 and 2015 are $27,931 and $32,586 respectively.
- The fixed asset for the year 2014 and 2015 are $357,165 and $398,345 respectively.
- The accounts payable for the year 2014 and 2015 are $30,602 and $35,485 respectively.
- The other current liabilities for the year 2014 and 2015 are $15,280 and $20,441 respectively.
- The notes payable for the year 2014 and 2015 are $15,840 and $13,500 respectively.
- The long-term debt for the year 2014 and 2015 are $95,000 and $110,000.
- The common stock and paid in surplus for 2014 is $45,000 and for 2015 is $45,000
- The accumulated retained earnings for 2014 is $223,517 and 2015 is $253,893
- The net income is $50,376.
- The depreciation is $37,053.
- The dividend paid is $20,000.
- The cost of goods sold amounts to $291,090
- The sales is $422,045
- The earnings before interest and taxes is $93,902
- The interest paid is $16,400
- The retained earnings is $30,376
- The taxable income is $77,502
Formula to calculate the total asset turnover ratio:
Compute the total asset turnover ratio:
Hence, the total asset turnover ratio is 0.88 times.
e)
To find: The inventory turnover ratio of Company SG
Introduction:
The process of analyzing and calculating the financial ratios for the evaluation of the performance of the firm and to find the actions that are necessary to improve the firm’s performance is ratio analysis.
Answer to Problem 26QP
The inventory turnover ratio is 8.93 times.
Explanation of Solution
Given information:
The balance sheet of the Company SG shows the following information:
- The total assets for the year 2014 is $425,239 and for 2015 is $478,319
- The total liabilities and equity for the year 2014 is 425,239 and for 2015 is $478,319
- The cash at the beginning and end of the year are $26,450 and $29,106 respectively.
- The accounts receivable for the year 2014 and 2015 are $13,693 and $18,282 respectively.
- The inventory for the year 2014 and 2015 are $27,931 and $32,586 respectively.
- The fixed asset for the year 2014 and 2015 are $357,165 and $398,345 respectively.
- The accounts payable for the year 2014 and 2015 are $30,602 and $35,485 respectively.
- The other current liabilities for the year 2014 and 2015 are $15,280 and $20,441 respectively.
- The notes payable for the year 2014 and 2015 are $15,840 and $13,500 respectively.
- The long-term debt for the year 2014 and 2015 are $95,000 and $110,000.
- The common stock and paid in surplus for 2014 is $45,000 and for 2015 is $45,000
- The accumulated retained earnings for 2014 is $223,517 and 2015 is $253,893
- The net income is $50,376.
- The depreciation is $37,053.
- The dividend paid is $20,000.
- The cost of goods sold amounts to $291,090
- The sales is $422,045
- The earnings before interest and taxes is $93,902
- The interest paid is $16,400
- The retained earnings is $30,376
- The taxable income is $77,502
Formula to calculate the inventory turnover ratio:
Compute the inventory turnover ratio:
Hence, the inventory turnover ratio is 8.93 times.
f)
To find: The receivables turnover ratio of Company SG
Introduction:
The process of analyzing and calculating the financial ratios for the evaluation of the performance of the firm and to find the actions that are necessary to improve the firm’s performance is ratio analysis.
Answer to Problem 26QP
The receivables turnover ratio is 23.09 times.
Explanation of Solution
Given information:
The balance sheet of the Company SG shows the following information:
- The total assets for the year 2014 is $425,239 and for 2015 is $478,319
- The total liabilities and equity for the year 2014 is 425,239 and for 2015 is $478,319
- The cash at the beginning and end of the year are $26,450 and $29,106 respectively.
- The accounts receivable for the year 2014 and 2015 are $13,693 and $18,282 respectively.
- The inventory for the year 2014 and 2015 are $27,931 and $32,586 respectively.
- The fixed asset for the year 2014 and 2015 are $357,165 and $398,345 respectively.
- The accounts payable for the year 2014 and 2015 are $30,602 and $35,485 respectively.
- The other current liabilities for the year 2014 and 2015 are $15,280 and $20,441 respectively.
- The notes payable for the year 2014 and 2015 are $15,840 and $13,500 respectively.
- The long-term debt for the year 2014 and 2015 are $95,000 and $110,000.
- The common stock and paid in surplus for 2014 is $45,000 and for 2015 is $45,000
- The accumulated retained earnings for 2014 is $223,517 and 2015 is $253,893
- The net income is $50,376.
- The depreciation is $37,053.
- The dividend paid is $20,000.
- The cost of goods sold amounts to $291,090
- The sales is $422,045
- The earnings before interest and taxes is $93,902
- The interest paid is $16,400
- The retained earnings is $30,376
- The taxable income is $77,502
Formula to calculate the receivables turnover ratio:
Compute the receivables turnover ratio:
Hence, the receivables turnover ratio is 23.09 times.
g)
To find: The total debt ratio of Company SG
Introduction:
The process of analyzing and calculating the financial ratios for the evaluation of the performance of the firm and to find the actions that are necessary to improve the firm’s performance is ratio analysis.
Answer to Problem 26QP
The total debt ratio for 2014 is 0.37 timesand for 2015 is 0.38 times.
Explanation of Solution
Long-term solvency ratios:
Given information:
The balance sheet of the Company SG shows the following information:
- The total assets for the year 2014 is $425,239 and for 2015 is $478,319
- The total liabilities and equity for the year 2014 is 425,239 and for 2015 is $478,319
- The cash at the beginning and end of the year are $26,450 and $29,106 respectively.
- The accounts receivable for the year 2014 and 2015 are $13,693 and $18,282 respectively.
- The inventory for the year 2014 and 2015 are $27,931 and $32,586 respectively.
- The fixed asset for the year 2014 and 2015 are $357,165 and $398,345 respectively.
- The accounts payable for the year 2014 and 2015 are $30,602 and $35,485 respectively.
- The other current liabilities for the year 2014 and 2015 are $15,280 and $20,441 respectively.
- The notes payable for the year 2014 and 2015 are $15,840 and $13,500 respectively.
- The long-term debt for the year 2014 and 2015 are $95,000 and $110,000.
- The common stock and paid in surplus for 2014 is $45,000 and for 2015 is $45,000
- The accumulated retained earnings for 2014 is $223,517 and 2015 is $253,893
- The net income is $50,376.
- The depreciation is $37,053.
- The dividend paid is $20,000.
- The cost of goods sold amounts to $291,090
- The sales is $422,045
- The earnings before interest and taxes is $93,902
- The interest paid is $16,400
- The retained earnings is $30,376
- The taxable income is $77,502
Formula to calculate the total debt ratio:
Compute the total debt ratio:
Hence, the total debt ratio for 2014 is 0.37 times.
Hence, the total debt ratio for 2015 is 0.38 times.
h)
To find: The debt equity ratio of Company SG
Introduction:
The process of analyzing and calculating the financial ratios for the evaluation of the performance of the firm and to find the actions that are necessary to improve the firm’s performance is ratio analysis.
Answer to Problem 26QP
The debt-equity ratio for the year 2014 is 0.58 timesand the debt-equity ratio for the year 2015 is 0.60 times.
Explanation of Solution
Given information:
The balance sheet of the Company SG shows the following information:
- The total assets for the year 2014 is $425,239 and for 2015 is $478,319
- The total liabilities and equity for the year 2014 is 425,239 and for 2015 is $478,319
- The cash at the beginning and end of the year are $26,450 and $29,106 respectively.
- The accounts receivable for the year 2014 and 2015 are $13,693 and $18,282 respectively.
- The inventory for the year 2014 and 2015 are $27,931 and $32,586 respectively.
- The fixed asset for the year 2014 and 2015 are $357,165 and $398,345 respectively.
- The accounts payable for the year 2014 and 2015 are $30,602 and $35,485 respectively.
- The other current liabilities for the year 2014 and 2015 are $15,280 and $20,441 respectively.
- The notes payable for the year 2014 and 2015 are $15,840 and $13,500 respectively.
- The long-term debt for the year 2014 and 2015 are $95,000 and $110,000.
- The common stock and paid in surplus for 2014 is $45,000 and for 2015 is $45,000
- The accumulated retained earnings for 2014 is $223,517 and 2015 is $253,893
- The net income is $50,376.
- The depreciation is $37,053.
- The dividend paid is $20,000.
- The cost of goods sold amounts to $291,090
- The sales is $422,045
- The earnings before interest and taxes is $93,902
- The interest paid is $16,400
- The retained earnings is $30,376
- The taxable income is $77,502
Formula to calculate the debt-equity ratio:
Compute the debt-equity:
Hence, the debt-equity ratio for the year 2014 is 0.58 times.
Hence, the debt-equity ratio for the year 2015 is 0.60 times.
Note: The total debt is calculated by adding the total-long term debt and total current liabilities.
i)
To find: The equity multiplier ratio of Company SG
Introduction:
The process of analyzing and calculating the financial ratios for the evaluation of the performance of the firm and to find the actions that are necessary to improve the firm’s performance is ratio analysis.
Answer to Problem 26QP
The equity multiplier ratio for the year 2014 is 1.58 timesand the equity multiplier ratio for the year 2015 is 1.60 times.
Explanation of Solution
Given information:
The balance sheet of the Company SG shows the following information:
- The total assets for the year 2014 is $425,239 and for 2015 is $478,319
- The total liabilities and equity for the year 2014 is 425,239 and for 2015 is $478,319
- The cash at the beginning and end of the year are $26,450 and $29,106 respectively.
- The accounts receivable for the year 2014 and 2015 are $13,693 and $18,282 respectively.
- The inventory for the year 2014 and 2015 are $27,931 and $32,586 respectively.
- The fixed asset for the year 2014 and 2015 are $357,165 and $398,345 respectively.
- The accounts payable for the year 2014 and 2015 are $30,602 and $35,485 respectively.
- The other current liabilities for the year 2014 and 2015 are $15,280 and $20,441 respectively.
- The notes payable for the year 2014 and 2015 are $15,840 and $13,500 respectively.
- The long-term debt for the year 2014 and 2015 are $95,000 and $110,000.
- The common stock and paid in surplus for 2014 is $45,000 and for 2015 is $45,000
- The accumulated retained earnings for 2014 is $223,517 and 2015 is $253,893
- The net income is $50,376.
- The depreciation is $37,053.
- The dividend paid is $20,000.
- The cost of goods sold amounts to $291,090
- The sales is $422,045
- The earnings before interest and taxes is $93,902
- The interest paid is $16,400
- The retained earnings is $30,376
- The taxable income is $77,502
Formula to calculate the equity multiplier:
Compute the equity multiplier ratio for the year 2015:
Hence, the equity multiplier ratio for the year 2014 is 1.58 times.
Hence, the equity multiplier ratio for the year 2015 is 1.60 times.
j)
To find: The times interest earned of Company SG
Introduction:
The process of analyzing and calculating the financial ratios for the evaluation of the performance of the firm and to find the actions that are necessary to improve the firm’s performance is ratio analysis.
Answer to Problem 26QP
The times interest earned is 5.73 times.
Explanation of Solution
Given information:
The balance sheet of the Company SG shows the following information:
- The total assets for the year 2014 is $425,239 and for 2015 is $478,319
- The total liabilities and equity for the year 2014 is 425,239 and for 2015 is $478,319
- The cash at the beginning and end of the year are $26,450 and $29,106 respectively.
- The accounts receivable for the year 2014 and 2015 are $13,693 and $18,282 respectively.
- The inventory for the year 2014 and 2015 are $27,931 and $32,586 respectively.
- The fixed asset for the year 2014 and 2015 are $357,165 and $398,345 respectively.
- The accounts payable for the year 2014 and 2015 are $30,602 and $35,485 respectively.
- The other current liabilities for the year 2014 and 2015 are $15,280 and $20,441 respectively.
- The notes payable for the year 2014 and 2015 are $15,840 and $13,500 respectively.
- The long-term debt for the year 2014 and 2015 are $95,000 and $110,000.
- The common stock and paid in surplus for 2014 is $45,000 and for 2015 is $45,000
- The accumulated retained earnings for 2014 is $223,517 and 2015 is $253,893
- The net income is $50,376.
- The depreciation is $37,053.
- The dividend paid is $20,000.
- The cost of goods sold amounts to $291,090
- The sales is $422,045
- The earnings before interest and taxes is $93,902
- The interest paid is $16,400
- The retained earnings is $30,376
- The taxable income is $77,502
Formula to calculate the times interest earned ratio:
Compute the times interest earned ratio:
Hence, the times interest earned is 5.73 times.
k)
To find: The cash coverage ratio of Company SG
Introduction:
The process of analyzing and calculating the financial ratios for the evaluation of the performance of the firm and to find the actions that are necessary to improve the firm’s performance is ratio analysis.
Answer to Problem 26QP
The cash coverage ratio is 7.99 times.
Explanation of Solution
Given information:
The balance sheet of the Company SG shows the following information:
- The total assets for the year 2014 is $425,239 and for 2015 is $478,319
- The total liabilities and equity for the year 2014 is 425,239 and for 2015 is $478,319
- The cash at the beginning and end of the year are $26,450 and $29,106 respectively.
- The accounts receivable for the year 2014 and 2015 are $13,693 and $18,282 respectively.
- The inventory for the year 2014 and 2015 are $27,931 and $32,586 respectively.
- The fixed asset for the year 2014 and 2015 are $357,165 and $398,345 respectively.
- The accounts payable for the year 2014 and 2015 are $30,602 and $35,485 respectively.
- The other current liabilities for the year 2014 and 2015 are $15,280 and $20,441 respectively.
- The notes payable for the year 2014 and 2015 are $15,840 and $13,500 respectively.
- The long-term debt for the year 2014 and 2015 are $95,000 and $110,000.
- The common stock and paid in surplus for 2014 is $45,000 and for 2015 is $45,000
- The accumulated retained earnings for 2014 is $223,517 and 2015 is $253,893
- The net income is $50,376.
- The depreciation is $37,053.
- The dividend paid is $20,000.
- The cost of goods sold amounts to $291,090
- The sales is $422,045
- The earnings before interest and taxes is $93,902
- The interest paid is $16,400
- The retained earnings is $30,376
- The taxable income is $77,502
Formula to calculate the cash coverage ratio:
Compute the cash coverage ratio:
Hence, the cash coverage ratio is 7.99 times.
l)
To find: The profit margin of Company SG
Introduction:
The process of analyzing and calculating the financial ratios for the evaluation of the performance of the firm and to find the actions that are necessary to improve the firm’s performance is ratio analysis.
Answer to Problem 26QP
The profit margin is 11.94%.
Explanation of Solution
Profitability ratios:
Given information:
The balance sheet of the Company SG shows the following information:
- The total assets for the year 2014 is $425,239 and for 2015 is $478,319
- The total liabilities and equity for the year 2014 is 425,239 and for 2015 is $478,319
- The cash at the beginning and end of the year are $26,450 and $29,106 respectively.
- The accounts receivable for the year 2014 and 2015 are $13,693 and $18,282 respectively.
- The inventory for the year 2014 and 2015 are $27,931 and $32,586 respectively.
- The fixed asset for the year 2014 and 2015 are $357,165 and $398,345 respectively.
- The accounts payable for the year 2014 and 2015 are $30,602 and $35,485 respectively.
- The other current liabilities for the year 2014 and 2015 are $15,280 and $20,441 respectively.
- The notes payable for the year 2014 and 2015 are $15,840 and $13,500 respectively.
- The long-term debt for the year 2014 and 2015 are $95,000 and $110,000.
- The common stock and paid in surplus for 2014 is $45,000 and for 2015 is $45,000
- The accumulated retained earnings for 2014 is $223,517 and 2015 is $253,893
- The net income is $50,376.
- The depreciation is $37,053.
- The dividend paid is $20,000.
- The cost of goods sold amounts to $291,090
- The sales is $422,045
- The earnings before interest and taxes is $93,902
- The interest paid is $16,400
- The retained earnings is $30,376
- The taxable income is $77,502
Formula to calculate the profit margin ratio:
Compute the profit margin:
Hence, the profit margin is 11.94%.
m)
To find: The return on assets of Company SG
Introduction:
The process of analyzing and calculating the financial ratios for the evaluation of the performance of the firm and to find the actions that are necessary to improve the firm’s performance is ratio analysis.
Answer to Problem 26QP
The return on assets is 0.1194.
Explanation of Solution
Given information:
The balance sheet of the Company SG shows the following information:
- The total assets for the year 2014 is $425,239 and for 2015 is $478,319
- The total liabilities and equity for the year 2014 is 425,239 and for 2015 is $478,319
- The cash at the beginning and end of the year are $26,450 and $29,106 respectively.
- The accounts receivable for the year 2014 and 2015 are $13,693 and $18,282 respectively.
- The inventory for the year 2014 and 2015 are $27,931 and $32,586 respectively.
- The fixed asset for the year 2014 and 2015 are $357,165 and $398,345 respectively.
- The accounts payable for the year 2014 and 2015 are $30,602 and $35,485 respectively.
- The other current liabilities for the year 2014 and 2015 are $15,280 and $20,441 respectively.
- The notes payable for the year 2014 and 2015 are $15,840 and $13,500 respectively.
- The long-term debt for the year 2014 and 2015 are $95,000 and $110,000.
- The common stock and paid in surplus for 2014 is $45,000 and for 2015 is $45,000
- The accumulated retained earnings for 2014 is $223,517 and 2015 is $253,893
- The net income is $50,376.
- The depreciation is $37,053.
- The dividend paid is $20,000.
- The cost of goods sold amounts to $291,090
- The sales is $422,045
- The earnings before interest and taxes is $93,902
- The interest paid is $16,400
- The retained earnings is $30,376
- The taxable income is $77,502
Formula to calculate the Return on assets (ROA):
Compute the Return on assets (ROA):
Hence, the return on assets is 0.1194 or 11.94%.
n)
To find: The return on equity of Company SG
Introduction:
The process of analyzing and calculating the financial ratios for the evaluation of the performance of the firm and to find the actions that are necessary to improve the firm’s performance is ratio analysis.
Answer to Problem 26QP
The return on equity is 0.1685.
Explanation of Solution
Given information:
The balance sheet of the Company SG shows the following information:
- The total assets for the year 2014 is $425,239 and for 2015 is $478,319
- The total liabilities and equity for the year 2014 is 425,239 and for 2015 is $478,319
- The cash at the beginning and end of the year are $26,450 and $29,106 respectively.
- The accounts receivable for the year 2014 and 2015 are $13,693 and $18,282 respectively.
- The inventory for the year 2014 and 2015 are $27,931 and $32,586 respectively.
- The fixed asset for the year 2014 and 2015 are $357,165 and $398,345 respectively.
- The accounts payable for the year 2014 and 2015 are $30,602 and $35,485 respectively.
- The other current liabilities for the year 2014 and 2015 are $15,280 and $20,441 respectively.
- The notes payable for the year 2014 and 2015 are $15,840 and $13,500 respectively.
- The long-term debt for the year 2014 and 2015 are $95,000 and $110,000.
- The common stock and paid in surplus for 2014 is $45,000 and for 2015 is $45,000
- The accumulated retained earnings for 2014 is $223,517 and 2015 is $253,893
- The net income is $50,376.
- The depreciation is $37,053.
- The dividend paid is $20,000.
- The cost of goods sold amounts to $291,090
- The sales is $422,045
- The earnings before interest and taxes is $93,902
- The interest paid is $16,400
- The retained earnings is $30,376
- The taxable income is $77,502
Formula to calculate the Return on equity (ROE):
Compute the Return on equity (ROE):
Hence, the return on equity is 0.1685 or 16.85%.
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Chapter 3 Solutions
Fundamentals of Corporate Finance
- The most recent financial statements for Bello Co. are shown here: Income Statement Balance Sheet Sales $13,000 Current assets $28,032 Debt $27,628 Costs 7,800 Fixed assets 19,616 Equity 20,020 Taxable income $5,200 Total $47,648 Total $47,648 Taxes (22%) 1,144 Net income $4,056 Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 36 percent dividend payout ratio. What is the sustainable growth rate?arrow_forwardSelected balance sheet and income statement information for Home Depot follows. $ millions Jan. 31, 2016 Feb. 01, 2015 Operating assets $40,683 $38,573 Nonoperating assets 2,266 1,773 Total assets 42,949 40,346 Operating liabilities 15,043 13,552 Nonoperating liabilities 21,275 17,157 Total liabilities 36,318 30,709 Sales 89,234 Net operating profit before tax (NOPBT) 12,124 Nonoperting expense before tax 803 Tax expense 4,001 Net income 7,320 Round answers to two decimal places (ex: 0.12345 = 12.35%). a. Compute return on net operating assets (RNOA). Assume a statutory tax rate of 37%.Answer% b. Disaggregate RNOA into components of profitability and productivity and show that the product of the two components equals RNOA. Assume a statutory tax rate of 37%.NOPM Answer%NOAT Answerarrow_forwardThe following table shows an abbreviated income statement and balance sheet for McDonald's Corporation for 2012. INCOME STATEMENT OF MCDONALD’S CORP., 2012 (Figures in $ millions) Net sales 27,570 Costs 17,572 Depreciation 1,405 Earnings before interest and taxes (EBIT) 8,593 Interest expense 520 Pretax income 8,073 Taxes 2,620 Net income 5,453 BALANCE SHEET OF MCDONALD’S CORP., 2012 (Figures in $ millions) Assets 2012 2011 Liabilities and Shareholders' equity 2012 2011 Current assets Current liabilities Cash and marketable securities 2,339 2,339 Debt due for repayment — 376 Receivables 1,378 1,338 Accounts payable 3,406 3,146 Inventories 125 120 Total current liabilities 3,406 3,522 Other current assets…arrow_forward
- The most recent financial statements for Assouad, Incorporated, are shown here: Income Statement Balance Sheet Sales $ 8,700 Current assets $ 4,200 Current liabilities $ 1,900 Costs 5,600 Fixed assets 10,400 Long-term debt 3,800 Taxable income $ 3,100 Equity 8,900 Taxes (25%) 775 Total $ 14,600 Total $ 14,600 Net income $ 2,325 Assets, costs, and current liabilities are proportional to sales. Long-term debt and equity are not. The company maintains a constant 40 percent dividend payout ratio. As with every other firm in its industry, next year’s sales are projected to increase by exactly 15 percent. What is the external financinarrow_forwardHere are simplified financial statements for Phone Corporation in a recent year: INCOME STATEMENT(Figures in $ millions) Net sales $ 13,700 Cost of goods sold 4,360 Other expenses 4,047 Depreciation 2,698 Earnings before interest and taxes (EBIT) $ 2,595 Interest expense 715 Income before tax $ 1,880 Taxes (at 35%) 658 Net income $ 1,222 Dividends $ 916 BALANCE SHEET (Figures in $ millions) End of Year Start of Year Assets Cash and marketable securities $ 95 $ 164 Receivables 2,682 2,610 Inventories 217 268 Other current assets 897 962 Total current assets $ 3,891 $ 4,004 Net property, plant, and equipment 20,033 19,975 Other long-term assets 4,276 3,830…arrow_forwardHere are simplified financial statements for Watervan Corporation: INCOME STATEMENT (Figures in $ millions) Net sales $ 888.00 Cost of goods sold 748.00 Depreciation 38.00 Earnings before interest and taxes (EBIT) $ 102.00 Interest expense 19.00 Income before tax $ 83.00 Taxes 17.43 Net income $ 65.57 BALANCE SHEET (Figures in $ millions) End of Year Start of Year Assets Current assets $ 376 $ 326 Long-term assets 272 229 Total assets $ 648 $ 555 Liabilities and shareholders’ equity Current liabilities $ 201 $ 164 Long-term debt 115 128 Shareholders’ equity 332 263 Total liabilities and shareholders’ equity $ 648 $ 555 The company’s cost of capital is 8.5%. a. Calculate Watervan’s economic value added (EVA). (Do not round intermediate calculations. Enter your answer in millions…arrow_forward
- Selected information from the balance sheet of Yogi Corp. for a recent year are provided below: Sales 37,213 Net Income 1,825 Total Assets 20,000 Total Liabilities 7,444 Stockholder’s Equity 12,556 Interest Expense 370 Tax Rate 38% Assets include: cash $420, short-term investments $1000, A/R $580, PPE $18000. Liabilities include: A/P $5500, short-term debt $44, Deferred Tax Liabilities $1500, and long-term debt $400 Compute RNOA and ROE Is leverage beneficial or detrimental to the companyarrow_forwardLedger Properties has the following financial information: Current Year Prior Year Revenues $ 48,915 $ 43,610 Administrative expenses 12,106 11,602 Interest expense 816 468 Cost of goods sold 29,715 26,309 Depreciation 1,408 1,387 Net fixed assets 32,711 31,984 Current liabilities 14,652 14,625 Common stock 15,000 14,000 Current assets 16,506 14,687 Long-term debt 12,200 ? Retained earnings 7,365 4,246 Dividends paid 290 275 What is the cash flow of the firm for the current year if the tax rate is 22 percent? Group of answer choicesarrow_forwardThe most recent financial statements for Assouad, Inc., are shown here: Income Statement Balance Sheet Sales $3,500 Current assets $4,000 Current liabilities $970 Costs 2,500 Fixed assets 6,200 Long-term debt 3,500 Taxable income $1,000 Equity 5,730 Taxes (25%) 250 Total $10,200 Total $10,200 Net income $750 Assets, costs, and current liabilities are proportional to sales. Long-term debt and equity are not. The company maintains a constant 50 percent dividend payout ratio. As with every other firm in its industry, next year's sales are projected to increase by exactly 20 percent. What is the external financing needed?arrow_forward
- Here are simplified financial statements for Watervan Corporation: INCOME STATEMENT (Figures in $ millions) Net sales $ 887.00 Cost of goods sold 747.00 Depreciation 37.00 Earnings before interest and taxes (EBIT) $ 103.00 Interest expense 18.00 Income before tax $ 85.00 Taxes 17.85 Net income $ 67.15 BALANCE SHEET (Figures in $ millions) End of Year Start of Year Assets Current assets $ 375 $ 324 Long-term assets 270 228 Total assets $ 645 $ 552 Liabilities and shareholders’ equity Current liabilities $ 200 $ 163 Long-term debt 114 127 Shareholders’ equity 331 262 Total liabilities and shareholders’ equity $ 645 $ 552 The company’s cost of capital is 8.5%. Required: What is the company’s return on capital? (Use start-of-year rather than average capital.) Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. P.S- Answer is not 26.48%arrow_forwardHere are simplified financial statements for Watervan Corporation: INCOME STATEMENT (Figures in $ millions) Net sales $ 887.00 Cost of goods sold 747.00 Depreciation 37.00 Earnings before interest and taxes (EBIT) $ 103.00 Interest expense 18.00 Income before tax $ 85.00 Taxes 17.85 Net income $ 67.15 BALANCE SHEET (Figures in $ millions) End of Year Start of Year Assets Current assets $ 375 $ 324 Long-term assets 270 228 Total assets $ 645 $ 552 Liabilities and shareholders’ equity Current liabilities $ 200 $ 163 Long-term debt 114 127 Shareholders’ equity 331 262 Total liabilities and shareholders’ equity $ 645 $ 552 The company’s cost of capital is 8.5%. Required: Calculate Watervan’s economic value added (EVA). Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. What is the company’s return on capital? (Use start-of-year rather than average capital.) Note: Do not…arrow_forwardTrying to calculate, Times Interest Earned. tax rate is 22% 3M Company Consolidated Statements Of Earnings $ millions Dec. 31, 2018 Dec. 31, 2017 Net sales $ 32,765 $ 31,657 Cost of sales $ 16,682 $ 16,055 Research, development and engineering expenses $ 1,821 $ 1,870 Selling, general and administrative expenses $ 7,602 $ 6,626 Gain on sale of business -$ 547 -$ 586 Total operating expenses $ 25,558 $ 23,965 Operating income $ 7,207 $ 7,692 Nonoperating expense, net $ 207 $ 144 Earnings before income taxes $ 7,000 $…arrow_forward
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