Question

Gerrard Construction Co. is an excavation contractor. The following summarized data (in thousands) are taken from the December 31, 2019, financial statements: $132,600 37,200 22,500 $ 72,900 33,120 11,100 $ 28, 680 For the Year Ended December 31, 2019: Net revenues Cost of services provided Depreciation expense Operating income Interest expense Income tax expense Net income At December 31, 2019: Assets Cash and short-term investments Accounts receivable, net Property, plant, and equipment, net Total assets Liabilities and Stockholders' Equity Accounts payable Income taxes payable Notes payable (long term) Paid-in capital Retained earnings Total liabilities and stockholders' equity $ 9,900 30,900 244,200 $285,000 $ 5,250 5,550 144,000 30,000 100, 200 $285,000

1. Calculate the company’s average income tax rate. (Hint: You must first determine the earnings before taxes.)

2. Calculate the amount of total current assets.

3. Calculate the amount of working capital and the current ratio at December 31, 2019. Assess the company’s overall liquidity.

4. Calculate ROI (including margin and turnover) and ROE for the year ended December 31, 2019.

5. Calculate the amount of dividends declared and paid during the year ended December 31, 2019. (Hint: Do a T-account analysis of retained earnings.)

Answer 1

operating income interest expense income before taxes $72,900 $33,120 $39,780 income tax expense income before taxes average income tax rate $11,100 $39,780 27.90%

cash and short term investments accounts receivable, net $9,900 $30,900 $40,800 total current assets

working capital = current assets - current liabilities working capital = $40,800 - ($5,250 + $5,550) working capital = $40,800 - $10,800 working capital = $30,000 current ratio = current assets/ current liabilities current ratio = $40,800 / ($5,250 + $5,550) working capital = $40,800 / $10,800 working capital = 3.78 the company's overall liquidity is good

ROI = net income / average total assets ROI = $28,680 / (($285,000+252,600)/2) ROI = 10.67% margin = net income / net revenues margin = $28,680 / $132,600 margin = 21.63% turnover = net revenues / average total assets turnover = $132,600 / (($285,000+252,600)/2) turnover = 0.49 ROE = net income / average stockholders' equity ROE = $28,680 / (($130,200+$103,800)/2) ROE = $28,680 / $117,000 ROE = 24.51% 11 beginning total stockholders' equity paid in capital beginning retained earnings net income ending retained earnings dividends declared and paid $1,03,800 $30.000 $73,800 $28,680 $1,00,200 $2,280 +