Question

Carson Electronics' management has long viewed BGT Electronics as an industry leader and uses this firm as a model firm for analyzing its own performance. The balance sheets and income statements for the two firms are found here: Carson Electronics Balance Sheet ($000) BGT Electronics Balance Sheet ($000) Cash $1,960 $1,540 Accounts receivable $4,550 $6,020 Inventories $1,470 $2,460 Current Assets $7,980 $10,020 Net fixed assets $16,040 $25,050 Total assets $24,020 $35,070 Accounts payable $2,520 $4,990 Accrued expenses $990 $1,480 Short-term notes payable $3,550 $1,540 Current liabilities $7,060 $8,010 Long-term debt $8,030 $4,000 Owner’s equity $8,390 $23,060 Total liabilities and owners’ equity $24,020 $35,070 Carson Electronics Income Statement ($000) BGT Electronics Income Statement ($000) Net sales (all credit) $47,970 $70,030 Cost of goods sold (35,960) (42,020) Gross profit $12,010 $28,010 Operating expenses (7,950) (12,010) Net operating income $4,060 $16,000 Interest expense (1,170) (560) Earnings before taxes $2,890 $15,440 Income taxes (40%) (1,156) (6,176) Net Income $1.734 $9,264 a.  Calculate the following ratios for both Carson and BGT: a. Calculate the following ratios for both Carson and BGT: Carson's current ratio is ___. (Round to two decimal places.) BGT's current ratio is ___. (Round to two decimal places.) Carson's times interest earned is ___ times. (Round to two decimal places.) BGT's times interest earned is ___ times. (Round to two decimal places.) Carson's inventory turnover is ___ times. (Round to two decimal places.) BGT's inventory turnover is ___ times. (Round to two decimal places.) Carson's total asset turnover is ___. (Round to two decimal places.) BGT's total asset turnover is ___. (Round to two decimal places.) Carson's operating profit margin is ___%. (Round to one decimal place.) BGT's operating profit margin is ___%. (Round to one decimal place.) Carson's operating return on assets is ___%. (Round to one decimal place.) BGT's operating return on assets is _-_ %. (Round to one decimal place.) Carson's debt ratio is ___%. (Round to one decimal place.) BGT's debt ratio is ___ %. (Round to one decimal place.) Carson's average collection period is ___ days. (Round to one decimal place.) BGT's average collection period is ___ days. (Round to one decimal place.) Carson's fixed asset turnover is ___. (Round to two decimal places.) BGT's fixed asset turnover is ___. (Round to two decimal places.) Carson's return on equity is ___%. (Round to one decimal place.) BGT's return on equity is ___%. (Round to one decimal place.) b.  Analyze the differences you observe between the two firms. Comment on what you view as weaknesses in the performance of Carson as compared to BGT that Carson's management might focus on to improve its operations.

Answer 1

The above question has been solved with the help of handwritten notes explaining clearly all the minute points. Please refer the attachments for the solution.

Please note the following points:-

• Balance Sheet total of Carson was not matching because of some incomplete data. Hence the difference figure of 540 has been taken as Reserve and Surplus , which can be the most logical assumption. Please note that Reserve and Surplus forms part of owner's equity.
• Total liabilities in the formula means all the liabilities minus owner's equity. Equity although is shown in the liablity side. But it is not liablity for the company in actual.

Weakness of Carson:-

• High debt ratio and and very low interest earned ratio. It needs to clear off its debt as soon as possible.
• Operating margin is very low. Necessary steps should be taken to increase its sales and reduce its cost of goods sold.
• Steps should be taken to reduce its average collection period, that is, it's accounts receivable should be realised as soon as possible.

classmate Date Pogo let ug fost summarize the Data given in the Question EGT Electronics 4550 1540 6020 2u6o 10020 16040 25050 35070 4990 1480 1540 8010 4000 Carson Electronics pCash 1960 2. Account Rec ) 3. Inventore » 1470 4. Cursaal Assets > 7980 I wet fonusets » Total Assets 24020 Accounts Payable 2520 8 ||Accrued Exp & 990 9. Is. Note Payable 3530 1o. c. liaba 7060 11.11. To dest - 80 30 12. Owner's Equity 8390 Total liab & 24020 Owner's eq Net Sales » 47970 -TAll Credit 35960 21 Cost of goods sold a 12010 3. Gross profit Faso 4. I operating Exp чово s Nee op Income 1170 Juterest axp » I tornings before tax " 2890 Income tax (40%) 1132 172u Net Inomo 23,060 35070 70030 42020 28010 12010 16000 560 15440 6177 9264 Scanned with CamScanner

classmate Date Page I Now lets plot the same in a simple shaped Balance sheet and profit I loss Account for more clarity. balance sheet LIABILITIES ASSETS Carson BGT Carson BGT. 1 8390 23060 owner's Equity I Net fixed 16040 125050 Assets Long Term Debt 1 8030 4ooo I Current Assetts - 1960 Cash 11540 liabities elsreut 6020 Accoued Expenses | 990 11480 | - Accounts Receivable 14550 2460 1470 Account Payable | 2520 4990 - Inventories IST. Notes Payable 3550 Isuo 24020 135070 18 part of owners equits) Reserre & surples (Clt 540 24020 135070 Income Carson 47970 (35960) State maut showing particulars Net Sales (-) Cost of Goods sold . Gross Profit - operating Expenses Operating Income (OR) Earnings - before Interest & Jax (EBIT. BGT. 70030 (412028 28010 (12010) 12010 (7950) 4060 16000 (1173 (360) 2890 (1152) 15446 (6176) (-) Juterest Expenses Earnings lefore Tax (EBT) - Income Tax (40%) Net Incom bafit Available for Equity shareholdey CSScanned with Earscanner 1734. 41264

classmate Dote poge * Please Note that the balance sheet of Carson was not matching an the data given was incomplete. Hence the difference Engure or s40 has been taken as Reserve & surples, which forms part of Equity Now lets calculate the latios - Particulars. Current Ratio » Current Asset Current liabilities one by one Carson 1980 BGT. 10020 7060 2010, 1:13 11.25 2) Times eatexest farned 4060 EBIT or Operating Income Interest 16000 560 1170 3.47 times 28.57 times 3) Inventory Jurnover Cost of Goods sold 42020 35960 1470 Inventory. 2460 17-08 24-46 Total Asset Turnover - Net Sales Total Assets 47970 240 20 70030 35070 11.99 (1.991 -Soperating Proofir Marging op-Income x100. I 4060 x100 Net Sales 47970 16000 x100 70030 22.85°11 » 8.460%! & Return on Assets Op. Income 4060 x 100 xloo 16000 x100 Total Assets 20020 35070 76.909% ed with CamScanner 45.62).

Carson ดราตร\ Deit Ratio - Yofal liabilities Total Assets 15090 BG7 12010 35070 [0.341 24020 10.63 365 365 10.54* 11-63* 5:) Arcyere collection fericed 365 eceivable of Tcirnover Ratio * Receárike Turnover Ratio , Credit Sales als | Accounts Receivable - Gason 47970 _*_10.54 4550 134-6] P[31:41 SGT 11.63 70030 6020 Turnove rixed Asset Ratio uzazo 700 30 Net Sale fixed Assets 16040 * 12.99 (2.80 - fetuon on Equity 100 I Net Income Boners Equity 1734 riool 9264 (8340+540) 23060 119.42°/- | 40.17*1. S$canned with CamScanner