Question

Assignment Chapter 14 6 Seved Help Save & Exit Submit Check my work $ Total liabilities Total assets Sales (all on credit) Average inventory Average receivables Gross profit as a percentage of sales Operating expenses as a percentage of sales Net income as a percentage of sales Marble Co. $ 200,000 800,000 1,910,000 240,000 200,000 401 361 Products 100,000 400,000 1,240.000 140,000 100.000 301 052 256 56 Rotorences a. Compute the net income for each company. b. Compute the net income as a percentage of stockholders' equity for each company. c. Compute the accounts receivable turnover for each company d. Compute the inventory turnover for each company. e. Which company is in a stronger financial position?

Answer 1

		Marble Co	Products
	Total liabilities	$        2,00,000	$     1,00,000
	Total assets	$        8,00,000	$     4,00,000
	Sales [all on credit]	$      19,10,000	$   12,40,000
	Average inventory	$        2,40,000	$     1,40,000
	Average receivables	$        2,00,000	$     1,00,000
	Gross profit as a % of sales	40%	30%
	Operating expenses as a % os sales	36%	25%
	Net income as a % of sales	3%	5%
	ANSWERS:
a]	Net income [Sales*Net income %]	$            57,300	$         62,000
b]	Stock holders' equity = Total assets-Total liabilities =	$        6,00,000	$     3,00,000
	Net income as a % of equity = NI/Equity =	9.55%	20.67%
c]	Accounts receivable turnover = Sales/Average receivables =	9.55	12.40
d]	Cost of goods sold = Sales*(1-Gross profit %]	$      11,46,000	$     8,68,000
	Inventory turnover = COGS/Average inventory =	4.78	6.20
e]	Debt ratio = Total liabilities/Total assets =	0.25	0.25
	Products is in a stronger financial position for the following reasons.
	*Its receivable turnover and inventory turnover ratios are higher,
	indicating that the current asset management is better than Marble Co.
	*Net profit % is higher. This is due to lower operating expenses.
	*The ROE is higher.