FIN 6465 Lecture Notes - Lecture 1: Accounts Payable, Net Income, Current Liability
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Related Questions
1.Use financial statements that are in the attached document to calculate the financial ratios presented.
2. Prepare and interpret an analysis of the financial ratios showing the company.
3. Summarize the findings and make recommendations.
4. Du Pont method is used to determine the return on equity. This result tells us?
Zumba Production Inc.
Income Statement
Year Ended December 31,2017
Sales | $160,000 | ||
Cost of Goods Solds: | |||
Merchandise Inventory, Jan 1,2013 | $208,400 | ||
Purchases (net) | 37,320 | ||
Goods Available for Sale | $171,080 | ||
Merchandise Inventory, Dec. 31, 2013 | 65,080 | ||
Cost of Goods Sold | 106,000 | ||
Gross Profit | $54,000 | ||
Operating Expenses | 37,000 | ||
Income from Operations | $17,000 | ||
Other Income and Expense: | |||
Interest Expense | 6,1000 | ||
Income before Tax | $10,900 | ||
Income Tax Expense | 4,360 | ||
Net Income | $6,540 |
Zumba Production Inc.
Balance Sheet
Year Ended December 31, 2017
Cash | $500 | |
Marketable Securities | 1,000 | |
Accounts Receivable | 25,000 | |
Merchandise Inventory | 45,500 | |
Property, Plant, and Equipment (net) | 60,000 | |
Furniture and Fixtures | 18,000 | |
Total Assets | $150,000 | |
Accounts Payable | $22,000 | |
Notes Payable | 40,000 | |
Accrued Salaries Payable | 7,000 | |
Long-Term Debt | 22,950 | |
Common Stock ($10-par) | 31,500 | |
Retained Earnings | 26,550 | |
Total Liabilities and Stockholders Equity | $150,000 |
The following financial ratios are presented according to the market where it competes Zumba Production Inc.
Ratio | Market | Zumba Production |
a. Current ratio | 1.80 | |
b. Quick ratio | 0.70 | |
c. Inventory turnover * | 2.50 | |
d. Average collection period * | 37.5 days | |
e. Debt ratio | 65% | |
f. Times interest earned ratio | 3.80 | |
g. Gross profit margin | 38% | |
h. Net profit margin | 3.50% | |
i. Return on total sales | 4.00% | |
j. Return on common equity | 9.50% | |
k. Market/ Book ratio | 1.10 | |
l. Working Capital | $5,000 | |
*Based on 365 days a year |
Financial statements of Ansbro Corporation follow: |
Ansbro Corporation Comparative Balance Sheet | ||
Ending Balance | Beginning Balance | |
Assets: | ||
Cash and cash equivalents | $32 | $29 |
Accounts receivable | 82 | 80 |
Inventory | 41 | 39 |
Property, plant and equipment | 648 | 560 |
Less: accumulated depreciation | 346 | 307 |
Total assets | $457 | $401 |
Liabilities and stockholders' equity: | ||
Accounts payable | $49 | $68 |
Bonds payable | 135 | 190 |
Common stock | 92 | 80 |
Retained earnings | 181 | 63 |
Total liabilities and stockholders' equity | $457 | $401 |
Income Statement | |
Sales | $745 |
Cost of goods sold | 373 |
Gross margin | 372 |
Selling and administrative expenses | 127 |
Net operating income | 245 |
Income taxes | 87 |
Net income | $158 |
Cash dividends were $40. The company did not dispose of any property, plant, and equipment. It did not issue any bonds payable or repurchase any of its own common stock. The following questions pertain to the company's statement of cash flows. |
The net cash provided by (used in) investing activities for the year was: |
$12
$(88)
$(55)
$(40)