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ACG 2071 Lecture Notes - Lecture 23: Asset, Market Power, Gross Margin

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School
University of Florida
Department
Accounting
Course
ACG 2071
Professor
Schadewald

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Document Summary

Total liabilities / total assets: what does it measure, proportion of assets financed by creditors, degree of financial leveraging, higher ratio more financial risk. Gross profit percentage = gross profit / sales. Operating income percentage = operating income / sales. Gross profit percentage: also, called gross margin percentage, what does it measure, amount of gross profit generated by each dollar of sales, reflects pricing power and ability to control cogs, as competition increases, margins tend to decline. Operating income percentage: what does it measure, amount of operating income generated by each dollar of sales, reflects pricing power and ability to control both cogs and sg&a expenses. In chapter 10, called sales margin (measured at divisional level) Net income / sales: also, called profit margin, what does it measure, amount of net income generated by each dollar of sales, reflects impact of interest expense and income taxes.

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Related Questions

Silver ComputerCorporation
Use the financial statementsbelow to complete a financial ratio analysis.
The ratios should becalculated on the ratio worksheet. Make sure to reference
amounts from the statementsonto your ratios. Be sure that your answer
uses the correct format forthat ratio: times, percentage, days, dollar amount.
RatioFormat:
Show with your answer whetherthe ratio is times, perentage, or dollar amount.
For example:
o Current ratio is times, so it would be shown as anumber compared to one.
(ie. 2.08 to 1 or 2.08:1 )
o Working capital is a dollar amount, so it would beshown as currency.
(ie. $11, 190 )
o Net margin is a percentage, so it would be shownwith a % sign.
(ie. 12.7% )
Take a look at the ratiodescriptions in the textbook to determine if the ratio is
times, percentage, or dollaramount.
Decimal Places onRatios
The following are typicallyaccepted rules for decimal places on ratios:
o Ratios: two decimal places
o Dollars: two decimal places (the book showed threedecimal places for
earnings per share but we don't need to do that forthis class)
o Days: one decimal place
o Percentages: one decimal place (the textbook showedpercentages to two
decimal places but I think that is overkill)
o Price-Earnings ratio: two decimal places
o Times: two decimal places
Silver ComputerCorporation
IncomeStatement
For the Year EndedDecember 31, 2016
Sales $ 47,240
Cost of goods sold 18,920
Gross profit 28,320
Operating expenses
Utilities $ 6,430
Wages 8,310
Rent 1,730 16,470
Operating income 11,850
Other revenue and expense
Interest revenue $ 940
Interest expense 1,190 2,130
Income before incometaxes 9,720
Income taxes 3,730
Net income $ 5,990
Silver ComputerCorporation
Comparative BalanceSheets
As of December 31,2016 and 2015
Change
2016 2015 Amount Percent
Assets
Current assets
Cash $ 3,290 $ 6,230 $ (2,940) -47.2%
Marketable securities 1,120 1,920 (800) -41.7%
Accounts receivable 3,980 6,790 (2,810) -41.4%
Merchandise inventory 6,880 5,110 1,770 34.6%
Supplies 1,270 2,130 (860) -40.4%
Total current assets 16,540 22,180 (5,640) -25.4%
Plant and equipment
Equipment 10,560 6,450 4,110 63.7%
Truck 26,310 18,310 8,000 43.7%
Total plant and equipment 36,870 24,760 12,110 48.9%
Total assets $ 53,410 $ 46,940 $ 6,470 13.8%
Liabilities
Current liabilities
Accounts payable $ 6,940 $ 4,390 $ 2,550 58.1%
Wages payable 990 1,510 (520) -34.4%
Accrued liabilities 2,420 1,920 500 26.0%
Total current liabilities 10,350 7,820 2,530 32.4%
Long-term liabilities
Long-term notes payable 9,900 6,300 3,600 57.1%
Total liabilities 20,250 14,120 6,130 43.4%
Stockholder's Equity
Common stock 8,460 6,610 1,850 28.0%
Retained earnings 29,700 26,210 3,490 13.3%
Total stockholder'sequity 38,160 32,820 5,340 16.3%
Total liabilities &equity $ 58,410 $ 46,940 $ 11,470 24.4%
Notes for preparationof financial ratios:
o All of Silver Corporations sales were onaccount.
o 1,692 shares of common stock were outstanding atthe end of 2016.
o $2.50 of dividends per share were paid in2016.
o The market price per share of Silver stock was$34.00 for all of 2016.
Answer this question
SilverComputer Corporation
Liquidity and SolvencyFinancial Ratios
LiquidityRatios
Note - Working Capitalshown as an example to follow on the remainingratios.
Working Capital 16,540
10,350 1.6:1
Current ratio
Quick ratio
* Quick assets are cash,marketable securities, and accounts receivable
Accounts receivableturnover
Average days to collectreceivables
Inventory turnover
Average days to sellinventory
Operating cycle
Solvency Ratios(Long-term credit risk)
Debt ratio
Interest coverage ratio

THIS ASSIGNMENT IS BASED ON FORM 10-K WALGREENS BOOTS ALLIANCE,INC. FOR 2017.

https://www.sec.gov/Archives/edgar/data/1618921/000161892117000069/wba-2017831x10k.htm#sD544AA1057C23391F01B25BC6265E816

Compute Ratios See specific details below.

Based on formulas given, compute the following ratios in Excelfor two years.

1. Current ratio: current assets/current liabilities

2. Debt ratio: total debt/total assets

3. Gross profit margin

4. Times interest earned: (Earnings before Interest &Taxes)/Interest Expense

5. Accounts receivable (AR) turnover: Net Credit Sales/AverageAR Note: Av

6. Inventory turnover: Sales/Average Inventory Note: Averageinventory = (

7. Return on Sales: Net Income (before interest &taxes)/Sales

8. Asset Turnover: Sales/average total assets

9. Return on Assets: net profit/average total assets

B. Prepare a DuPont Analysis of ROE for two years, includingcomputations of

Return on Sales

Asset Turnover

Return on Assets

Financial Leverage

Return on Equity

C. Briefly evaluate the ratio trends. Indicate on your worksheetwhether each ratio is:

stronger / weaker

quicker /slower

more / less liquid

more / less risk

Hillside,Inc.
BALANCE SHEET INCOME STATEMENT
($ in millions) ($ in millions)
ASSETS LIABILITIES Revenue 28,681.10
Cash & Marketable Securities 449.90 Accounts Payable 1,611.20 Cost Of Goods Sold 20,768.80
Accounts Receivable 954.80 Salaries Payable 225.20 Gross Profit 7,912.30
Inventories 3,645.20 Other Current Liabilities 1,118.80
Other Current Assets 116.60 Total Current Liabilities 2,955.20 Operating Expenses:
Total Current Assets 5,166.50 Selling, General & Admin. 5,980.80
Other Liabilities 693.40 Depreciation 307.30
Machinery & Equipment 1,688.90 Operating income 1,624.20
Land 1,129.70 Total Liabilities 3,648.60
Buildings 2,348.40 Interest -
Depreciation (575.60) SHAREHOLDER'S EQUITY Other Expense (Income) (13.10)
Property, Plant & Equip. - Net 4,591.40 Common Stock 828.50 Income Before Taxes 1,637.30
Other Long Term Assets 120.90 Retained Earnings 5,401.70 Income Taxes 618.10
Total Long-Term Assets 4,712.30 Total Shareholder's Equity 6,230.20 Net Income 1,019.20
Total Assets 9,878.80 Total Liabilities & Equity 9,878.80
Number of Common Stock
Shares Outstanding 1,032,271
Input Answers Below Financial Performance Summary
LIQUIDITY RATIOS
Current Ratio (times)
Quick Ratio (times)
Average Payment Period (days)
ASSET MANAGEMENT RATIOS
Total Asset Turnover (times)
Average Collection Period (days)
Inventory Turnover (times)
FINANCIAL LEVERAGE RATIOS
Total Debt to Total Assets
Equity Multiplier (times)
PROFITABILITY RATIOS
Operating Profit Margin
Net Profit Margin
Return on Total Assets
Return on Equity
Earnings per Share