Problem 12-6B Use ratios to analyze risk and profitability (LO12-3, 12-4) Required: 1. Calculate the following...
Problem 12-6B Use ratios to analyze risk and profitability (LO12-3, 12-4)
Required:
1. Calculate the following risk ratios for 2021 and 2022:
(Round your answers to 1 decimal place.)
2. Calculate the following profitability ratios for 2021 and 2022: (Round your answers to 1 decimal place.)
[The following information applies to the questions
displayed below.]
Income statement and balance sheet data for The Athletic Attic are
provided below.
| THE ATHLETIC ATTIC | ||||||
| Income Statements | ||||||
| For the years ended December 31 | ||||||
| 2022 | 2021 | |||||
| Net sales | $ | 12,780,000 | $ | 11,350,000 | ||
| Cost of goods sold | 8,330,000 | 7,100,000 | ||||
| Gross profit | 4,450,000 | 4,250,000 | ||||
| Expenses: | ||||||
| Operating expenses | 1,770,000 | 1,720,000 | ||||
| Depreciation expense | 200,000 | 200,000 | ||||
| Interest expense | 57,000 | 57,000 | ||||
| Income tax expense | 604,000 | 520,000 | ||||
| Total expenses | 2,631,000 | 2,497,000 | ||||
| Net income | $ | 1,819,000 | $ | 1,753,000 | ||
| THE ATHLETIC ATTIC | ||||||||||||
| Balance Sheets | ||||||||||||
| December 31 | ||||||||||||
| 2022 | 2021 | 2020 | ||||||||||
| Assets | ||||||||||||
| Current assets: | ||||||||||||
| Cash | $ | 242,000 | $ | 172,000 | $ | 238,000 | ||||||
| Accounts receivable | 1,007,000 | 757,000 | 777,000 | |||||||||
| Inventory | 1,742,000 | 1,372,000 | 1,042,000 | |||||||||
| Supplies | 147,000 | 117,000 | 92,000 | |||||||||
| Long-term assets: | ||||||||||||
| Equipment | 1,780,000 | 1,780,000 | 1,780,000 | |||||||||
| Less: Accumulated depreciation | (770,000 | ) | (570,000 | ) | (370,000 | ) | ||||||
| Total assets | $ | 4,148,000 | $ | 3,628,000 | $ | 3,559,000 | ||||||
| Liabilities and Stockholders' Equity | ||||||||||||
| Current liabilities: | ||||||||||||
| Accounts payable | $ | 224,300 | $ | 157,000 | $ | 147,300 | ||||||
| Interest payable | 5,700 | 0 | 5,700 | |||||||||
| Income tax payable | 57,000 | 52,000 | 47,000 | |||||||||
| Long-term liabilities: | ||||||||||||
| Notes payable | 670,000 | 670,000 | 670,000 | |||||||||
| Stockholders' equity: | ||||||||||||
| Common stock | 770,000 | 770,000 | 770,000 | |||||||||
| Retained earnings | 2,421,000 | 1,979,000 | 1,919,000 | |||||||||
| Total liabilities and stockholders’ equity | $ | 4,148,000 | $ | 3,628,000 | $ | 3,559,000 | ||||||
Problem 12-6B Part 1
Required:
1. Calculate the following risk ratios for 2021 and 2022:
(Round your answers to 1 decimal place.)
|
||||||||||||||||||||||||||
2. Calculate the following profitability ratios for 2021 and 2022: (Round your answers to 1 decimal place.)
|
||||||||||||||||||||||||||
Homework Answers
1)
| Formula | 2021 | 2022 | |
| Receivables turnover ratio | Sales/Average receivable |
11,350,000 /[(777000+757000)/2] 11350000/767000 14.8 |
12,780,000 /[(757000+1007000)/2] 12780000/882000 14.5 |
| Inventory turnover ratio | cost of good sold /Average inventory |
7,100,000 /(1042000+1372000)/2] 7100000/1207000 5.9 |
8,330,000 /[(1372000+1742000)/2] 8330000/1557000 5.4 |
| current ratio | current asset /current liability |
2418000/209000 11.6 |
3138000/287000 10.9 |
| Debt to equity ratio | Total debt /Total equity |
879000/2749000 .30 |
957000/3191000 .30 |
b)
| Formula | 2021 | 2022 | |
| Gross profit ratio | Gross margin /sales |
4250000/11350000 37.4% |
4450000/12780000 34.8% |
| Return on asset | Net income /Average asset |
1,753,000 /[(3559000+3628000)/2] 1753000/3593500 48.8% |
1,819,000 /[3628000+4148000)/2] 1819000/3888000 46.8% |
| Profit margin | net income /sales |
1753000/11350000 15.4% |
1819000/12780000 14.2% |
| Asset turnover | sales/Average asset |
11350000/3593500 3.2 |
12780000/3888000 3.3 |
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