Question

Financial data for Joel de Paris, Inc., for last year follow: Joel de Paris, Inc. Balance Sheet Beginning Balance Ending Balance Assets Cash Accounts receivable Inventory Plant and equipment, net Investment in Buisson, S.A. Land (undeveloped) Total assets Liabilities and Stockholders' Equity Accounts payable Long-term debt Stockholders' equity Total liabilities and stockholders' equity $ 135,000 336,000 569,000 800,000 399,000 247,000 $ 2,486,000 $ 129,000 478,000 472,000 801,000 426,000 247,000 $ 2,553,000 $ 373,000 1,015,000 1,098,000 $ 2,486,000 $ 334,000 1,015,000 1,204,000 $2,553,000 Joel de Paris, Inc. Income Statement Sales Operating expenses Net operating income Interest and taxes: Interest expense $ 117,000 Tax expense 205,000 Net income $ 4,650,000 3,813,000 837,000 322,000 515,000 $ The company paid dividends of $409,000 last year. The "Investment in Buisson, S.A.," on the balance sheet represents an investment in the stock of another company. The company's minimum required rate of return of 15%. Required: 1. Compute the company's average operating assets for last year. 2. Compute the company's margin, turnover, and return on investment (ROI) for last year. (Round "Margin", "Turnover" and "ROI" to 2 decimal places.) 3. What was the company's residual income last year?

Answer 1

Average operating assets

= [(2,486,000-247,000-399,000)+(2,553,000-247,000-426,000)]/2

= 1,860,000

Margin = Net operating income/Sales

= 837,000/4,650,000

= 18%

Turnover = Sales/Average operating assets

= 4,650,000/1,860,000

= 2.5

ROI = Margin * Turnover = 18*2.5

= 45%

Residual income = Net operating income - Required return

= 837,000-(1,860,000*15%)

= 558,000