ACC E272 Lecture Notes - Lecture 14: Intangible Asset, Asset Turnover, Historical Cost
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Selected financial data of Target Corporation and Wal-MartStores, Inc. for a recent year are presented here (inmillions).
Target Corporation | Wal-Mart Stores, Inc. | ||
Income StatementData for Year | |||
Net sales | $61,471 | $374,526 | |
Cost of goods sold |  41,895 |  286,515 | |
Selling and administrativeexpenses |  16,200 |   70,847 | |
Interest expense |     647 |    1,798 | |
Other income (expense) |   1,896 |    4,273 | |
Income tax expense |   1,776 |    6,908 | |
Net income | $ 2,849 | $ 12,731 | |
BalanceSheet Data (End of Year) | |||
Current assets | $18,906 | $ 47,585 | |
Noncurrent assets |  25,654 |  115,929 | |
Total assets | $44,560 | $163,514 | |
Current liabilities | $11,782 | $ 58,454 | |
Long-term debt |  17,471 |   40,452 | |
Total stockholders'equity |  15,307 |   64,608 | |
Total liabilities andstockholders' equity | $44,560 | $163,514 |
Target Corporation | Wal-Mart Stores, Inc. | ||
Beginning-of-YearBalances | |||
Total assets | $37,349 | $151,587 | |
Total stockholders'equity |  15,633 |   61,573 | |
Current liabilities |  11,117 |   52,148 | |
Total liabilities |  21,716 |   90,014 |
Other Data | |||
Average net accountsreceivable | $ 7,124 | $  3,247 | |
Average inventory | 6,517 | 34,433 | |
Net cash provided by operatingactivities | 4,125 | 20,354 |
Instructions
For each company, compute the following ratios.
(1) Current ratio.
(2) Accounts receivable turnover.
(3) Average collection period.
(4) Inventory turnover.
(5) Days in inventory.
(6) Profit margin.
(7) Asset turnover.
(8) Return on assets.
(9) Return on common stockholders' equity.
(10) Debt to assets ratio.
(11) Times interest earned.
Compare the liquidity, profitability, and solvency of the twocompanies.
The financial statements for Armstrong and Blair companies are summarized here: |
Armstrong Company | Blair Company | |||||
Balance Sheet | ||||||
Cash | $ | 27,000 | $ | 14,000 | ||
Accounts Receivable, Net | 32,000 | 22,000 | ||||
Inventory | 84,000 | 24,000 | ||||
Equipment, Net | 164,000 | 284,000 | ||||
Other Assets | 37,000 | 400,000 | ||||
Total Assets | $ | 344,000 | $ | 744,000 | ||
Current Liabilities | $ | 84,000 | $ | 34,000 | ||
Note Payable (long-term) | 44,000 | 354,000 | ||||
Total Liabilities | 128,000 | 388,000 | ||||
Common Stock (par $10) | 142,000 | 192,000 | ||||
Additional Paid-in Capital | 22,000 | 102,000 | ||||
Retained Earnings | 52,000 | 62,000 | ||||
Total Liabilities and Stockholders’ Equity | $ | 344,000 | $ | 744,000 | ||
Income Statement | ||||||
Sales Revenue | $ | 426,000 | $ | 786,000 | ||
Cost of Goods Sold | 237,000 | 397,000 | ||||
Other Expenses | 152,000 | 307,000 | ||||
Net Income | $ | 37,000 | $ | 82,000 | ||
Other Data | ||||||
Estimated value of each share at end of year | $ | 18 | $ | 27 | ||
Selected Data from Previous Year | ||||||
Accounts Receivable, Net | $ | 12,000 | $ | 30,000 | ||
Inventory | 84,000 | 37,000 | ||||
Equipment, Net | 164,000 | 284,000 | ||||
Note Payable (long-term) | 44,000 | 62,000 | ||||
Total Stockholders’ Equity | 223,000 | 432,000 | ||||
The companies are in the same line of business and are direct competitors in a large metropolitan area. Both have been in business approximately 10 years and each has had steady growth. Despite these similarities, the management of each has a different viewpoint in many respects. Blair is more conservative, and as its president said, “We avoid what we consider to be undue risk.” Both companies use straight-line depreciation, but Blair estimates slightly shorter useful lives than Armstrong. No shares were issued in the current year and neither company is publicly held. Blair Company has an annual audit by a CPA, but Armstrong Company does not. Assume the end-of-year total assets and net equipment balances approximate the year’s average and all sales are on account. |
Required: |
1. | Calculate the following ratios. |
TIP: To calculate EPS, use the balance in Common Stock to determine the number of shares outstanding. Common Stock equals the par value per share times the number of shares. (Use 365 days in a year. Round your intermediate calculations and your final answers to 2 decimal places.) |
Ratio | Armstrong Company | Blair Company | |||
Tests of Profitability: | |||||
1. | Net Profit Margin | 8.69 | % | 10.43 | % |
2. | Gross Profit Percentage | % | % | ||
3. | Fixed Asset Turnover | ||||
4. | Return on Equity | % | % | ||
5. | Earnings per Share | ||||
6. | Price/Earnings Ratio | ||||
Tests of Liquidity: | |||||
7. | Receivables Turnover | ||||
Days to Collect | |||||
8. | Inventory Turnover | ||||
Days to Sell | |||||
9. | Current Ratio | ||||
Tests of Solvency: | |||||
10. | Debt-to-Assets |