Use the following balance sheet and income statement tocalculate the firm's return on equity (net income / commonequity):
Balance Sheet
Income Statement
Assets:
Cash
$3,000
Sales (all credit)
$85,000
Accounts Receivable
5,000
Cost of Goods Sold
(51,000)
Inventories
6,500
Land
20,000
Operating Expenses
(15,000)
Other Fixed Assets
18,000
Depreciation
(1,000)
Liabilities & Owners' Equity
Interest Expense
(3,000)
Accounts Payable
4,000
Long Term Debt
26,700
Taxes
(5,100)
Common Stock
5,000
Paid in Capital
12,000
Retained Earnings
4,800
50.4%
45.4%
41.6%
58.9%
58.2%
Use the following balance sheet and income statement tocalculate the firm's return on equity (net income / commonequity):
Balance Sheet | Income Statement | ||
Assets: | |||
Cash | $3,000 | Sales (all credit) | $85,000 |
Accounts Receivable | 5,000 | Cost of Goods Sold | (51,000) |
Inventories | 6,500 | ||
Land | 20,000 | Operating Expenses | (15,000) |
Other Fixed Assets | 18,000 | Depreciation | (1,000) |
Liabilities & Owners' Equity | Interest Expense | (3,000) | |
Accounts Payable | 4,000 | ||
Long Term Debt | 26,700 | Taxes | (5,100) |
Common Stock | 5,000 | ||
Paid in Capital | 12,000 | ||
Retained Earnings | 4,800 |
| 50.4% |
| 45.4% |
| 41.6% |
| 58.9% |
| 58.2% |
Related questions
Use the income statement and balance sheet provided to make recommendation for the amount of dividend (if any). How are retained earnings impacted and what does this mean for the organization?
Compute the Internal Growth Rate and Sustainable Growth Rate using current (2015) financial information and then a second scenario; if we issue a dividend payment of $3 million.
Explain your thought process and rationale for a recommended dividend strategy.
Concept Check: Dividends are distributions of profits to your investors who placed their capital at risk for you. Theoretically every company should eventually provide a dividend distribution to their investors.
| CME Iron | Balance Sheet | ||
| Assets | |||
| Current assets: | 2014 | 2015 | change |
| Cash | 500,000 | 600,000 | 100,000 |
| Investments | 1,000,000 | 1,025,000 | 25,000 |
| Inventories | 110,000,000 | 117,000,000 | 7,000,000 |
| Accounts receivable | 11,750,000 | 12,500,000 | 750,000 |
| Pre-paid expenses | 2,500,000 | 2,600,000 | 100,000 |
| Other | 0 | 0 | - |
| Total current assets | 125,750,000 | 133,725,000 | 7,975,000 |
| Fixed assets: | 2014 | 2015 | change |
| Property and equipment | 165,000,000 | 175,000,000 | 10,000,000 |
| Leasehold improvements | 0 | 0 | - |
| Equity and other investments | 55,000,000 | 65,000,000 | 10,000,000 |
| Less accumulated depreciation | 15,000,000 | 15,500,000 | 500,000 |
| Total fixed assets | 235,000,000 | 255,500,000 | 20,500,000 |
| Other assets: | 2014 | 2015 | change |
| Goodwill | 75,000,000 | 70,000,000 | (5,000,000) |
| Total other assets | 75,000,000 | 70,000,000 | (5,000,000) |
| Total assets | 435,750,000 | 459,225,000 | 23,475,000 |
| Liabilities and owner's equity | |||
| Current liabilities: | 2014 | 2015 | change |
| Accounts payable | 40,500,000 | 42,400,000 | 1,900,000 |
| Accrued wages | 85,000,000 | 90,500,000 | 5,500,000 |
| Accrued compensation | 10,000,000 | 10,855,000 | 855,000 |
| Income taxes payable | 4,024,000 | 4,697,000 | 673,000 |
| current portion of LT debt | 5,500,000 | 10,350,000 | 4,850,000 |
| Other | 0 | 0 | - |
| Total current liabilities | 145,024,000 | 158,802,000 | 13,778,000 |
| Long-term liabilities: | 2014 | 2015 | change |
| Long term debt | 125,000,000 | 130,000,000 | 5,000,000 |
| Total long-term liabilities | 125,000,000 | 130,000,000 | 5,000,000 |
| Owner's equity: | 2014 | 2015 | change |
| Common stock | 122,000,000 | 122,000,000 | - |
| Preferred stock | 16,725,000 | 16,725,000 | - |
| Accumulated retained earnings | 27,001,000 | 31,698,000 | 4,697,000 |
| Total owner's equity | 165,726,000 | 170,423,000 | 4,697,000 |
| Total liabilities and owner's equity | 435,750,000 | 459,225,000 | 23,475,000 |
Income Statement
ACME Iron
December 2015
Financial Statements in '000s of U.S. Dollars
| REVENUE | |
| Gross Sales | 250,000 |
| Less: Sales Returns & Allowances | 2,500 |
| Net Sales | 247,500 |
| COST OF GOODS SOLD | |
| Beginning Inventory | 7,500 |
| Add: Purchases | 4,500 |
| Freight-in | - |
| Direct Labor | 75,000 |
| Indirect Expenses | 15,000 |
| Inventory Available | 102,000 |
| Less: Ending Inventory | |
| Cost of Goods Sold | 102,000 |
| Gross Profit (Loss) | 145,500 |
| EXPENSES | |
| Advertising | 7,500 |
| Amortization | - |
| Bad Debts | 5,000 |
| Depreciation | 500 |
| Dues and Subscriptions | - |
| Employee Benefit Programs | 18,750 |
| Insurance | 2,500 |
| Interest | 10,350 |
| Legal & Professional Fees | 100 |
| Licenses & Fees | - |
| Miscellaneous | 10 |
| Office Expenses | 100 |
| Payroll Taxes | 5,625 |
| Postage | 3 |
| Rent | - |
| Repairs & Maintenance | 5,000 |
| Supplies | 2,000 |
| Telephone | 120 |
| Travel | 1,750 |
| Utilities | 50,000 |
| Vehicle Expenses | 450 |
| Wages | 25,000 |
| Total Expenses | 134,758 |
| Net Operating Income | 10,742 |
| OTHER INCOME | |
| Gain (Loss) on Sale of Assets | - |
| Interest Income | 1,000 |
| Total Other Income | 1,000 |
| TAXES | 4,697 |
| Net Income (Loss) | 7,045 |
