Question

Financial statements for Askew Industries for 2021 are shown below (in thousands):

2021 Income Statement
Net sales	$	9,500
Cost of goods sold		(6,425	)
Gross profit		3,075
Operating expenses		(2,225	)
Interest expense		(250	)
Income tax expense		(240	)
Net income	$	360

Comparative Balance Sheets
	Dec. 31
	2021				2020
Assets
Cash	$	650			$	550
Accounts receivable		650				450
Inventory		850				650
Property, plant, and equipment (net)		2,500				2,600
	$	4,650			$	4,250
Liabilities and Shareholders’ Equity
Current liabilities	$	1,400			$	1,150
Bonds payable		1,650				1,650
Common stock		650				650
Retained earnings		950				800
	$	4,650			$	4,250

Required:
Calculate the following ratios for 2021. (Consider 365 days a year. Do not round intermediate calculations and round your final answers to 2 decimal places.)

days days 1. Inventory turnover ratio 2. Average days in inventory 3. Receivables turnover ratio 4. Average collection period 5. Asset turnover ratio 6. Profit margin on sales 7. Return on assets 8. Return on equity 9. Equity multiplier 10. Return on equity (using the DuPont framework) times

Answer 1

1)	Average Inventory = (beginning inventory + ending inventory)/2
	= ( $650+850)/2
	= $ 750
	Inventory Turnover Ratio = Cost of goods sold / average inventory
	= $6425/750
	=8.57 times
2)	Days sales in inventory = 365/ inventory turnover ratio
	= 365 days /8.56666666666667
	=42.61 days
3)	Average Account Receivables = (beginning Account Receivables + ending Account Receivables)/2
	= ( $450+650)/2
	= $ 550
	Account Receivables Turnover Ratio = Sales / average Account Receivables
	= $9500/550
	=17.27 times
4)	Average Collection Period = 365/ Account Receivables turnover ratio
	= 365 days /17.2727272727273
	=21.13 days
5)	Average Assets = (beginning Assets + ending Assets)/2
	= ( $4250+4650)/2
	= $ 4450
	Assets Turnover Ratio = Sales / average Assets
	= $9500/4450
	=2.13 times
6)	Profit Margin = Net Income / Sales
	= $360/9500
	=3.79 %
7)	Return On Assets = Net Income / Average Assets
	= $360/4450
	=8.09 %
8)	Average Stockholders Equity = (beginning Stockholders Equity + ending Stockholders Equity)/2
	= ( $1450+1600)/2
	= $ 1525
	Return On Stockholders Equity = Net Income / Average Stockholders Equity
	= $360/1525
	=23.61 %
9)	Equity multipler = Average total assest / average equity
	=$4450/1525
	2.92
10)	Return On Equity = Profit margin * asset turnover * equity multiplier
		=3.79%*2.13*2.92
		=23.61%	or	23.57	(due to round off)