Question

Year 2 472 1,316 6,782 260 1,220 1,500 Year 1 414 860 6,662 158 Accounts payable Accounts receivable Accumulated depreciation Cash & equivalents Common stock Cost of goods sold Depreciation expense Common stock dividends paid Interest expense Inventory Addition to retained earnings Long-term debt Notes payable Gross plant & equipment Retained earnings Sales Other current liabilities Tax rate Market price per share - year end Number of shares outstanding 140 1,050 602 848 230 10,260 3,098 3,018 116 346 $ 19.80 500 million 1,150 n.a. n.a. n.a. n.a. 1,056 n.a. 766 380 10,000 2,506 n.a. 96 n.a. $ 17.50 500 million Net profit = 830.28 a. Calculate Windswept Woodworks' return on equity for year 2. (Round your answer to 2 decimal places.) ROE Calculate the following items for Windswept Woodworks for year 2. (Round your answers to 2 decimal places.) b. Profit margin c. Tax burden ratio d. Interest burden ratio e. Asset turnover ratio f. Leverage ratio

Answer 1

Answer-

Given Net profit = $ 830.28 million

a) ROE for year 2

ROE = Net income / Equity
Net income = 830.28
Equity = Number of share outstanding x price/ share
Equity = 500 million x $ 19.80
Equity = $ 9900 million
ROE =$ 830.28 m / $ 9900
ROE = 0.0838 =8.38%

b) Profit margin
= Net income / sales = $ 830.28 m / $ 3018 m
= 0.2751 = 27.51%

c) Tax burden ratio = Net income / EBT
Sales - COGS = Gross income = $ 3018 m - $ 1500 m = $ 1518 m
Gross income - depreciation expense = EBIT = $ 1518 - $ 120 = $ 1398 m
(Depreciation expense = $ 6782 m - $ 6662 m = $ 120 m)
EBT = EBIT - Interest expense = $ 1398 m - $ 140 m = $ 1258 m
Tax burden ratio = $ 830.28 m / $ 1258 m = 0.66

d) Interest burden ratio = EBT / EBIT
= $ 1258 / $ 1398 = 0.899

e) Asset turnover ratio = Sales / Assets
Assets = cash & equivalents + Accounts receivable + common stock + Inventory
Assets = $ 260 m + $ 1316 m + $ 1220 m +$ 1050 m = $ 3846 m
Asset turnover ratio = $ 3018 m / $ 3846 m =0.784

f) Leverage ratio = Assets / Equity = $ 3846 m / $ 9900 m = 0.388