Question

2009 2010 Assets $ Current assets Cash Accounts receivable Inventory Total Fixed assets Net plant and equipment Total assets 3,291 4,787 12,398 $ 20,476 3,507 5,821 13,822 23,150 $ 48,907 $ 69,383 72,969 96,119 $ $ Liabilities and owners' equity Current liabilities Accounts payable Notes payable Other Total Long-term debt Owners' equity Common stock and paid-in surplus Accumulated retained earnings Total Total liabilities and owners' equity 2,133 1,730 86 3,949 13,800 2,560 2,076 103 4,739 16,560 $ $ 36,000 15,634 $ 51,634 $ 69,383 $ $ 36,000 38,820 74,820 96,119 SMOLIRA GOLF, INC. 2010 Income statement Sales Cost of goods sold Depreciation EBIT Interest paid Taxable income Taxes Net income $ 186,570 125,803 5,373 $ 55,394 1,470 $ 53,924 18,873 $ 35,051 Dividends Retained earnings $ 11,865 23,186

using the financial statements above, all numbers are in thousands.

1. prepare the common size balance sheet and income statement

2. calculate financial ratios. (suppose stock price is 5$ per share, there are 10 million shares outstanding)

3. Calculate the DuPont identity, how does each component contribute to ROE?

Answer 1

Common Size Balance Sheet	2009	%	2010	%
Assets
Current Assets
Cash	3291	4.74%	3507	3.65%
Accounts receivable	4787	6.90%	5821	6.06%
Iventory	12398	17.87%	13822	14.38%
Total	20476	29.51%	23150	24.08%
Fixed Assets
Net PPE	48907	70.49%	72969	75.92%
Total Assets	69383	100.00%	96119	100.00%
Liabilities & owner's equity
Current liabilities
Accounts payable	2133	3.07%	2560	2.66%
Notes payable	1730	2.49%	2076	2.16%
Other	86	0.12%	103	0.11%
Total	3949	5.69%	4739	4.93%
Long term term debt	13800	19.89%	16560	17.23%
Owner's equity
Common stock	36000	51.89%	36000	37.45%
Retained earnings	15634	22.53%	38820	40.39%
Total	51634	74.42%	74820	77.84%
Total Liabilities & owner's equity	69383	100.00%	96119	100.00%

Common size Income Statement
Sales	186570	100.00%
COGS	125803	67.43%
Depreciation	5373	2.88%
EBIT	55394	29.69%
Interest	1470	0.79%
Taxable Income	53924	28.90%
Taxes	18873	10.12%
Net income	35051	18.79%
Dividend	11865	6.36%
Retained earning	23186	12.43%

FINANCIAL RATIOS
1. Current Ratio= Current Assets/Current Liabilities
Current Assets	23150
Current Liabilities	4739
Current ratio	4.88
2. Liquid Ratio= Liquid Assets/Current Liabilities
Liquid assets= Current Assets-inventory= 23150-13822
Current Liabilities	4739
Liquid ratio=	1.97
3. Debt Ratio= Total Liabilities/Total assets
Total liabilities	21299
Total assets	96119
Debt ratio	22%
4. Debt equity ratio= Total liabilities/Total equity
Total liabilities	21299
Total equity	74820
Ratio	0.28

5. Inventory turnover ratio= Cost of goods sold/Averge inventory
COGS	125803
Inventory	13110	(12398+13822)/2
ITR	9.60
6. Receivable turnover ratio= Net credit sales/Avergae receivable
Sales	186570
Receivables	5304	(4787+5821)/2
ratio	35.18
7. Days sales in inventory
Days in a year	365
ITR	9.60
Ratio	38	days
8. Days sales in receivable
Days in a year	365
Ratio	35.18
Days	11 days
8 Gross margin= Gross profit/Net sales
Gross profit	60767
Net sales	186570
Gross margin	33%

Du Pont Analysis= Net profit*Asset turnover*Equity Multiplier
Net profit Margin= Net Profit/Net sales= 35051/186570= 18.79%
Asset turnover ratio= Sales/Average total assets= 186570/((69383+96119)/2= 2.25
Equity multiplier= Average total assets/Average shareholder's equity
Average total Assets= 82751
Average shareholder's equity= (51634+74820)/2= $63227
Multiplier= 82751/63227= 1.3088
Return on equity= Net income/Average shareholder's equity= 35051/63227= 55.44%
Return on equity= 18.79%*2.25*1.3088= 55.44 %