Sub Station and Planet Sub reported the following selected financial data ($ in thousands). Sub Station’s business strategy is to sell the best tasting sandwich with the highest quality ingredients. Planet Sub’s business strategy is to sell the lowest cost sub on the planet.
Sub Station
Planet Sub
Net sales
$
108,649
$
62,471
Net income
26,322
3,892
Total assets, beginning
75,583
39,199
Total assets, ending
117,171
45,333
Required:
1. Calculate Sub Station’s return on assets, profit margin, and asset turnover ratio. (Enter your answers in thousands of dollars. (i.e. 123,000 should be entered as 123).)
.
Sub Station and Planet Sub reported the following selected financial data ($ in thousands). Sub Station’s business strategy is to sell the best tasting sandwich with the highest quality ingredients. Planet Sub’s business strategy is to sell the lowest cost sub on the planet.
| Sub Station | Planet Sub | |||||||
| Net sales | $ | 108,649 | $ | 62,471 | ||||
| Net income | 26,322 | 3,892 | ||||||
| Total assets, beginning | 75,583 | 39,199 | ||||||
| Total assets, ending | 117,171 | 45,333 | ||||||
Required:
1. Calculate Sub Station’s return on assets, profit margin, and asset turnover ratio. (Enter your answers in thousands of dollars. (i.e. 123,000 should be entered as 123).)
.
Related questions
Problem 13-18A Common-Size Statements and Financial Ratios for a Loan Application [LO13-1, LO13-2, LO13-3, LO13-4]
| Paul Sabin organized Sabin Electronics 10 years ago to produce and sell several electronic devices on which he had secured patents. Although the company has been fairly profitable, it is now experiencing a severe cash shortage. For this reason, it is requesting a $540,000 long-term loan from Gulfport State Bank, $120,000 of which will be used to bolster the Cash account and $420,000 of which will be used to modernize equipment. The companyâs financial statements for the two most recent years follow: |
| Sabin Electronics | ||||
| Comparative Balance Sheet | ||||
| This Year | Last Year | |||
| Assets | ||||
| Current assets: | ||||
| Cash | $ | 86,000 | $ | 190,000 |
| Marketable securities | 0 | 22,000 | ||
| Accounts receivable, net | 529,000 | 340,000 | ||
| Inventory | 960,000 | 635,000 | ||
| Prepaid expenses | 22,000 | 26,000 | ||
| Total current assets | 1,597,000 | 1,213,000 | ||
| Plant and equipment, net | 1,631,600 | 1,410,000 | ||
| Total assets | $ | 3,228,600 | $ | 2,623,000 |
| Liabilities and Stockholders Equity | ||||
| Liabilities: | ||||
| Current liabilities | $ | 820,000 | $ | 470,000 |
| Bonds payable, 12% | 800,000 | 800,000 | ||
| Total liabilities | 1,620,000 | 1,270,000 | ||
| Stockholders' equity: | ||||
| Common stock, $15 par | 810,000 | 810,000 | ||
| Retained earnings | 798,600 | 543,000 | ||
| Total stockholdersâ equity | 1,608,600 | 1,353,000 | ||
| Total liabilities and equity | $ | 3,228,600 | $ | 2,623,000 |
| Sabin Electronics | ||||
| Comparative Income Statement and Reconciliation | ||||
| This Year | Last Year | |||
| Sales | $ | 5,200,000 | $ | 4,470,000 |
| Cost of goods sold | 3,915,000 | 3,490,000 | ||
| Gross margin | 1,285,000 | 980,000 | ||
| Selling and administrative expenses | 661,000 | 556,000 | ||
| Net operating income | 624,000 | 424,000 | ||
| Interest expense | 96,000 | 96,000 | ||
| Net income before taxes | 528,000 | 328,000 | ||
| Income taxes (30%) | 158,400 | 98,400 | ||
| Net income | 369,600 | 229,600 | ||
| Common dividends | 114,000 | 93,000 | ||
| Net income retained | 255,600 | 136,600 | ||
| Beginning retained earnings | 543,000 | 406,400 | ||
| Ending retained earnings | $ | 798,600 | $ | 543,000 |
| During the past year, the company introduced several new product lines and raised the selling prices on a number of old product lines in order to improve its profit margin. The company also hired a new sales manager, who has expanded sales into several new territories. Sales terms are 2/10, n/30. All sales are on account. |
| Required: |
| 1. | To assist in approaching the bank about the loan, Paul has asked you to compute the following ratios for both this year and last year: |
| a. | The amount of working capital. |
| This Year | Last Year | |
| Working Capital |
| b. | The current ratio. (Round your answers to 2 decimal places.) |
| This Year | Last Year | |
| Current Ratio |
| c. | The acid-test ratio. (Round your answers to 2 decimal places.) |
| This Year | Last Year | |
| Acid-test ratio |
| d. | The average collection period. (The accounts receivable at the beginning of last year totaled $290,000.) (Round your intermediate calculations and final answers to 1 decimal place. Use 365 days in a year.) |
| This Year | Last Year | |
| Average Collection Period | days | days |
| e. | The average sale period. (The inventory at the beginning of last year totaled $540,000.) (Round your intermediate calculations and final answers to 1 decimal place. Use 365 days in a year.) |
| This Year | Last Year | |
| Average Sale Period | Days | Days |
| f. | The operating cycle. (Round your intermediate calculations and final answer to 1 decimal place.) |
| This Year | Last Year | |
| Operating Cycle | Days | Days |
| g. | The total asset turnover. (The total assets at the beginning of last year were $2,540,000.) (Round your answers to 2 decimal places.) |
| This Year | Last Year | |
| Total Asset Turnover |
| h. | The debt-to-equity ratio. (Round your answers to 3 decimal places.) |
| This Year | LastYear | |
| Debt-to-equity ratio |
| i. | The times interest earned ratio. (Round your answers to 1 decimal place.) |
| This Year | Last Year | |
| Times interest earned ratio |
| j. | The equity multiplier. (The total stockholdersâ equity at the beginning of last year totaled $1,343,000.) (Round your answers to 2 decimal places.) |
| This Year | Last Year | |
| Equity multiplier |
| 2. | For both this year and last year: |
| a. | Present the balance sheet in common-size format. (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).) |
| Sabin Electronics |
| Common-Size Balance Sheets |
| This Year | Last Year | |||
| Assets | ||||
| Current Assets: | ||||
| Cash | % | % | ||
| Marketable securities | ||||
| Account receivable, net | ||||
| Inventory | ||||
| Prepaid expenses | ||||
| Total current assets | ||||
| Plant and equipment, net | ||||
| Total assets | % | % | ||
| Liabilities and Stockholders' Equity | ||||
| Liabilities: | ||||
| Current Liabilities | % | % | ||
| Bonds payable, 12% | ||||
| Total Liabilities | ||||
| Stockholders' equity: | ||||
| Common stock, $15 par | ||||
| Retained earnings | ||||
| Total stockholders' equity | ||||
| Total liabilities and equity | % | % |
| b. | Present the income statement in common-size format down through net income. (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)
|
| Paul Sabin organized Sabin Electronics 10 years ago to produce and sell several electronic devices on which he had secured patents. Although the company has been fairly profitable, it is now experiencing a severe cash shortage. For this reason, it is requesting a $580,000 long-term loan from Gulfport State Bank, $140,000 of which will be used to bolster the Cash account and $440,000 of which will be used to modernize equipment. The companyâs financial statements for the two most recent years follow: |
| Sabin Electronics | ||||
| Comparative Balance Sheet | ||||
| This Year | Last Year | |||
| Assets | ||||
| Current assets: | ||||
| Cash | $ | 100,000 | $ | 230,000 |
| Marketable securities | 0 | 26,000 | ||
| Accounts receivable, net | 581,000 | 380,000 | ||
| Inventory | 1,025,000 | 675,000 | ||
| Prepaid expenses | 26,000 | 30,000 | ||
| Total current assets | 1,732,000 | 1,341,000 | ||
| Plant and equipment, net | 1,759,600 | 1,450,000 | ||
| Total assets | $ | 3,491,600 | $ | 2,791,000 |
| Liabilities and Stockholders Equity | ||||
| Liabilities: | ||||
| Current liabilities | $ | 840,000 | $ | 510,000 |
| Bonds payable, 12% | 650,000 | 650,000 | ||
| Total liabilities | 1,490,000 | 1,160,000 | ||
| Stockholders' equity: | ||||
| Common stock, $15 par | 930,000 | 930,000 | ||
| Retained earnings | 1,071,600 | 701,000 | ||
| Total stockholdersâ equity | 2,001,600 | 1,631,000 | ||
| Total liabilities and equity | $ | 3,491,600 | $ | 2,791,000 |
| Sabin Electronics | ||||
| Comparative Income Statement and Reconciliation | ||||
| This Year | Last Year | |||
| Sales | $ | 5,400,000 | $ | 4,590,000 |
| Cost of goods sold | 3,955,000 | 3,530,000 | ||
| Gross margin | 1,445,000 | 1,060,000 | ||
| Selling and administrative expenses | 669,000 | 564,000 | ||
| Net operating income | 776,000 | 496,000 | ||
| Interest expense | 78,000 | 78,000 | ||
| Net income before taxes | 698,000 | 418,000 | ||
| Income taxes (30%) | 209,400 | 125,400 | ||
| Net income | 488,600 | 292,600 | ||
| Common dividends | 118,000 | 97,000 | ||
| Net income retained | 370,600 | 195,600 | ||
| Beginning retained earnings | 701,000 | 505,400 | ||
| Ending retained earnings | $ | 1,071,600 | $ | 701,000 |
| During the past year, the company introduced several new product lines and raised the selling prices on a number of old product lines in order to improve its profit margin. The company also hired a new sales manager, who has expanded sales into several new territories. Sales terms are 2/10, n/30. All sales are on account. |
| Required: |
| 1. | To assist in approaching the bank about the loan, Paul has asked you to compute the following ratios for both this year and last year: |
| a. | The amount of working capital. |
| b. | The current ratio. (Round your answers to 2 decimal places.) |
| c. | The acid-test ratio. (Round your answers to 2 decimal places.) |
| d. | The average collection period. (The accounts receivable at the beginning of last year totaled $330,000.) (Round your intermediate calculations and final answers to 1 decimal place. Use 365 days in a year.) |
| e. | The average sale period. (The inventory at the beginning of last year totaled $580,000.) (Round your intermediate calculations and final answers to 1 decimal place. Use 365 days in a year.) |
| f. | The operating cycle. (Round your intermediate calculations and final answer to 1 decimal place.) |
| g. | The total asset turnover. (The total assets at the beginning of last year were $2,660,000.) (Round your answers to 2 decimal places.) |
| h. | The debt-to-equity ratio. (Round your answers to 3 decimal places.) |
| i. | The times interest earned ratio. (Round your answers to 1 decimal place.) |
| j. | The equity multiplier. (The total stockholdersâ equity at the beginning of last year totaled $1,621,000.) (Round your answers to 2 decimal places.) |
| 2. | For both this year and last year: |
| a. | Present the balance sheet in common-size format. (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).) |
| b. | Present the income statement in common-size format down through net income. (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).) |
please explain and show how you got the solutions. thanks!
