Question

Use the financial statements of Heifer Sports Inc. to find the information below for Heifer. (Use 365 days a year. Round all answers to 2 decimal places except $ amounts.) Income Statement Sales Cost of goods sold Depreciation Selling & admin. expenses EBIT Interest expense Taxable income Taxes Net income 2017 $ 5,650,000 2,950,000 291,206 1,560,000 $848,800 146,000 $702,800 315,400 $ 387,400 Balance Sheet, Year-End AssetS 2017 2016 Cash Accounts receivable Inventory $ 47,300 640,000e 475,100 60,000 1,037, 500 721,700 Total current assets Fixed assets $ 1,162,4001.819 - 3,024,000 $ 4,186,400 4,231,000 $ 6,050,200 Total assets Liabilities and Stockholders' Equity Accounts payable Short-term debt $ 332,500 493,000 $ 705,000 863,300 Total current liabilities Long-term bonds 825,500568 3- 2,205,1003,453,200_ $ 3,030,600 Total liabilities Common stock Retained earnings $ 5,021,800 $ 313,800 714,600 $ 1,028,400 $6,050, 200 $ 313,800 842,00e Total stockholders' equity $1,155,801 Total liabilities and stockholders equity $ 4,186,400 Answer is not complete Inventory turnover ratio in 2017 b. Debt/equity ratio in 2017 c. Cash flow from operating activities in 2017 4.93 2.62 S950,200

Answer 1

(a) The answer for operating margin is wrong because in this context, operting income of the firm includes depreciation. Hence, Operating Income = EBITDA =  (EBIT + Depreciation)

Operating Income = 848800 + 291200 = $ 1140000 and Revenue = $ 5650000

Therefore, Operating Margin = (1140000 / 5650000) x 100 ~ 20.1769 % ~ 20.18 %

(b) Return on Equity (at the end of Time T) = Net Income (at the end of Time T) / Shareholder's Equity (at the end of Time T-1) (because ROE measures the return (net income) generated for a given amount of equity already invested).

Therefore, ROE = Net Income 2017 / Shareholder's Equity 2016 = 387400 / 1028400 ~ 0.3767 or 37.67 %