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Ex. 14.4
a. (1)
(2)
$ 207.0
72.3
(2)
(3)
$ 311.3
130.1
Working capital ……………………………………… $ 181.2
c. By traditional standards, Roy’s Toys seems to be quite liquid. Both its quick ratio
and current ratio appear satisfactory, and its working capital balance is
substantial. As a large and well-established company, it is quite possible that Roy’s
Toys might be able to meet its current obligations even if its liquidity measures
became lower than they are at the present time.
Working capital:
Total current assets (part a) ……………………………..
Less: Current liabilities ………………………………….
Current ratio:
(Dollars in
Millions)
Inventories ………………………………………………….
Quick assets [part a (1)] …………………………………
Quick assets:
Current assets:
Ex. 14.5
4,395,253$
2,821,455
1,573,798
1,004,396
569,402$
b.
# 1,573,798$
(3)
Return on assets:
35.8%
Net sales ………………………………………………………
…
4,395,253$
Gross profit rate ($1,573,798 ÷ $4,395,253) ……………
…
Gross profit ……………………………………………………
…
Nonoperating items:
Net income ……………………………………………………
…
380,379$
Net income as a percentage of net sales:(2)
(Dollars in thousands, except per share amounts)
Net sales ……………………………………………………………….
Less: Cost of goods sold …………………………………………………
…
a. SPINX, INC
Statement of Earnings
For the Year Ended December 31, 2015
(1)
Operating income ………………………………………………………
…
Gross profit ………………………………………………………………
…
Less: Operating expenses ………………………………………………
…
Gross profit rate:
Ex. 14.6 a. =Operating income
Average total assets
b. =
Net income
Average total stockholders’
Return on assets
Return on equity
Ex. 14.9
a.
The number of Home Depot stores has stayed relatively stable over the 2008-2012
period. The number of stores declined by 30 between 2008 and 2009, then increased
slowly in 2010, 2011, and 2012 to a total number of 2,256 stores in 2012. This is near
Ex. 14.10
Accepting the job offer from Alpha Research might be justified in terms of the
company’s liquidity, profitability, and the growth potential of its common stock.
Liquidity: At first glance, the high current and quick ratios of Omega Scientific make
it appear to be more liquid than Alpha Research. However, these figures may also
(3)
b.
2014: 6.1 times ($610,000 ÷ $100,000 average accounts receivable)
2015: 5 times ($750,000 ÷ $150,000 average accounts receivable)
There are three favorable trends. First, the growth in net sales from $610,000 to
$750,000. This represents an increase of 23% ($140,000 increase, divided by
$610,000 in the prior year). Next, the gross profit rate increased from 33% in
2014 to 34% in 2015. Not only is Quick Sell, Inc. selling more, but it is selling its
merchandise at a higher profit margin. Finally, the inventory turnover increased,
indicating that the company has increased its sales without having to
proportionately increase its investment in inventories.
2014: 4 times ($408,000 ÷ $102,000 average inventory)
2015: 4.5 times ($495,000 ÷ $110,000 average inventory)
Accounts receivable turnover:
Ex. 14.13
a.
1.3 to 1 ($130,000 ÷ $100,000)
2015
Current ratio: 2.0 to 1 ($160,000 ÷ $80,000)
Note: Number of common shares outstanding is $100,000 ÷ $5 par, or 20,000 shares.
[($45,000 increase in retained earnings + $16,000 dividends) ÷ 20,000 shares]
2014
Brazil
Italian Stone
Marble Co. Products
a. 54,000$
Combined, these measures indicate that Brazil Stone Products is in the stronger financial
position.
Ex. 14.14
Net income ($1,800,000 x .03)………………………
…
20 Minutes, Easy
a. Common size income statement:
Outdoor World Industry
I
nc.
A
verag
e
Sales
(
net
)
100
%
100
%
Cost of
g
oods sold
49
58
Gross
p
rofit on sales 51
%
42
%
SOLUTIONS TO PROBLEMS SET
A
PROBLEM 14.1
A
OUTDOOR WORLD INC.
25 Minutes, Medium
2015 201
4
a. Net sales:
(
$172,800 ÷ .06
)
2,880,000
$
(
$189,000 ÷ .075
)
2,520,000
$
b. Cost of
g
oods sold in dollars:
(
$1,386,000 ÷ $2,520,000
)
55
%
c. O
p
eratin
g
ex
p
enses in dollars:
($1,008,000 gross profit - $230,400 income before tax) 777,600$
(
$1,134,000
g
ross
p
rofit - $252,000 income before tax
)
882,000
$
PROBLEM 14.2
A
DONELSON, INC
