Question

Given the financial statements for Jones Corporation and Smith Corporation:  

JONES CORPORATION
Current Assets					Liabilities
Cash			$	22,000	Accounts payable	$	127,000
Accounts receivable				81,100	Bonds payable (long term)		85,600
Inventory				50,000
Long-Term Assets					Stockholders' Equity
Gross fixed assets	$	526,000			Common stock	$	150,000
Less: Accumulated depreciation		150,700			Paid-in capital		70,000
Net fixed assets*				375,300	Retained earnings		95,800
Total assets			$	528,400	Total liabilities and equity	$	528,400

    

Sales (on credit)	$	1,326,000
Cost of goods sold		790,000
Gross profit	$	536,000
Selling and administrative expense†		304,000
Depreciation expense		59,800
Operating profit	$	172,200
Interest expense		14,500
Earnings before taxes	$	157,700
Tax expense		99,600
Net income	$	58,100

*Use net fixed assets in computing fixed asset turnover.
†Includes $13,500 in lease payments.
  

SMITH CORPORATION
Current Assets					Liabilities
Cash			$	38,400	Accounts payable	$	83,300
Marketable securities				12,700	Bonds payable (long term)		217,000
Accounts receivable				74,300
Inventory				83,700
Long-Term Assets					Stockholders' Equity
Gross fixed assets	$	504,000			Common stock	$	75,000
Less: Accumulated depreciation		255,800			Paid-in capital		30,000
Net fixed assets*				248,200	Retained earnings		52,000
Total assets			$	457,300	Total liabilities and equity	$	457,300

*Use net fixed assets in computing fixed asset turnover.

   

SMITH CORPORATION
Sales (on credit)	$	1,100,000
Cost of goods sold		640,000
Gross profit	$	460,000
Selling and administrative expense†		272,000
Depreciation expense		56,500
Operating profit	$	131,500
Interest expense		24,300
Earnings before taxes	$	107,200
Tax expense		56,500
Net income	$	50,700

^†Includes $13,500 in lease payments.
  
a. Compute the following ratios. (Use a 360-day year. Do not round intermediate calculations. Input your profit margin, return on assets, return on equity, and debt to total assets answers as a percent rounded to 2 decimal places. Round all other answers to 2 decimal places.)

Jones Corp. Smith Corp. Profit margin % % Return on assets (investments) % % Return on equity % % Receivable turnover times times Average collection period days days Inventory turnover times times Fixed asset turnover times times Total asset turnover times times Current ratio times times Quick ratio times times Debt to total assets % % Times interest earned times times Fixed charge coverage times times

Answer 1

Answer to Part 1.

Jones Corp.

Profit Margin = Net Income / Sales * 100
Profit Margin = $58,100 / $1,326,000 * 100
Profit Margin = 4.38%

Smith Corp.

Profit Margin = Net Income / Sales * 100
Profit Margin = $50,700 / $1,100,000 * 100
Profit Margin = 4.61%

Answer to Part 2.

Jones Corp.

Return on Assets = Net Income / Total Assets * 100
Return on Assets = $58,100 / $528,400 * 100
Return on Assets = 11.00%

Smith Corp.

Return on Assets = Net Income / Total Assets * 100
Return on Assets = $50,700 / $457,300 * 100
Return on Assets = 11.09%

Answer to Part 3.

Jones Corp.

Return on Equity = Net Income / Total Stockholders’ Equity * 100
Total Stockholders’ Equity = $150,000 + $70,000 + $95,800
Total Stockholders’ Equity = $315,800

Return on Equity = $58,100 / $315,800 * 100
Return on Equity = 18.40%

Smith Corp.

Return on Equity = Net Income / Total Stockholders’ Equity * 100
Total Stockholders’ Equity = $75,000 + $30,000 + $52,000
Total Stockholders’ Equity = $157,000

Return on Equity = $50,700 / $157,000 * 100
Return on Equity = 32.29%

Answer to Part 4.

Jones Corp.

Receivable Turnover = Sales / Accounts Receivable
Receivable Turnover = $1,326,000 / $81,100
Receivable Turnover = 16.35 times

Smith Corp.

Receivable Turnover = Sales / Accounts Receivable
Receivable Turnover = $1,100,000 / $74,300
Receivable Turnover = 14.80 times