ACC 221 Chapter Notes -Asset, Financial Statement, Income Statement
ACC 221 Full Course Notes
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Tying the Ratios Together
The DuPont equation shows the relationships among asset management, debt management, and
-Select-liquiditymarketprofitabilityCorrect 1 of Item 1 ratios. Management can use the DuPont equation to analyze ways of improving the firm's performance. Its equation is:
Ratio analysis is important to understand and interpret financial statements; however, sound financial analysis involves more than just calculating and interpreting numbers. -Select-QuantitativeQualitativeForeignCorrect 2 of Item 1 factors also need to be considered.
Quantitative Problem: Rosnan Industries' 2014 and 2013 balance sheets and income statements are shown below.
| Balance Sheets: | |||
| 2014 | 2013 | ||
| Cash and equivalents | $60 | $45 | |
| Accounts receivable | 275 | 300 | |
| Inventories | 375 | 350 | |
| Total current assets | $710 | $695 | |
| Net plant and equipment | 2,000 | 1,490 | |
| Total assets | $2,710 | $2,185 | |
| Accounts payable | $150 | $85 | |
| Accruals | 75 | 50 | |
| Notes payable | 110 | 135 | |
| Total current liabilities | $335 | $270 | |
| Long-term debt | 450 | 290 | |
| Common stock | 1,225 | 1,225 | |
| Retained earnings | 700 | 400 | |
| Total liabilities and equity | $2,710 | $2,185 | |
| Income Statements: | |||
| 2014 | 2013 | ||
| Sales | $2,000 | $1,500 | |
| Operating costs excluding depreciation | 1,250 | 1,000 | |
| EBITDA | $750 | $500 | |
| Depreciation and amortization | 100 | 75 | |
| EBIT | $650 | $425 | |
| Interest | 62 | 45 | |
| EBT | $588 | $380 | |
| Taxes (40%) | 235 | 152 | |
| Net income | $353 | $228 | |
| Dividends paid | $53 | $48 | |
| Addition to retained earnings | $300 | $180 | |
| Shares outstanding | 100 | 100 | |
| Price | $25.00 | $22.50 | |
| WACC | 10.00% | ||
What is the firmâs 2014 current ratio? Round your answer to two decimal places.
The 2014 current ratio indicates that Rosnan has -Select-insufficientsufficientCorrect 1 of Item 3 current assets to meet its current obligations as they come due.
What is the firmâs 2014 total assets turnover ratio? Round your answer to four decimal places.
Given the 2014 current and total assets turnover ratios calculated above, if Rosnanâs 2014 quick ratio is 1.0 then an analyst might conclude that Rosnanâs fixed assets are managed -Select-efficientlyinefficientlyCorrect 1 of Item 4.
What is the firmâs 2014 debt-to-capital ratio? Round your answer to two decimal places.
%
If the industry average debt-to-capital ratio is 30%, then Rosnanâs creditors have a -Select-smallerbiggerCorrect 1 of Item 5 cushion than indicated by the industry average.
What is the firmâs 2014 profit margin? Round your answer to two decimal places.
%
If the industry average profit margin is 12%, then Rosnanâs lower than average debt-to-capital ratio might be one reason for its high profit margin.
-Select-TrueFalseCorrect 1 of Item 6
What is the firmâs 2014 price/earnings ratio? Round your answer to two decimal places.
Using the DuPont equation, what is the firmâs 2014 ROE? Round your answer to two decimal places.
%
The following financial statements apply to Robin Company.
| 2015 | 2014 | |||||
| Revenues | ||||||
| Net sales | $ | 210,000 | $ | 175,000 | ||
| Other revenues | 4,000 | 5,000 | ||||
| Total revenues | 214,000 | 180,000 | ||||
| Expenses | ||||||
| Cost of goods sold | 126,000 | 103,000 | ||||
| Selling expenses | 21,000 | 19,000 | ||||
| General andadministrative expenses | 11,000 | 10,000 | ||||
| Interest expense | 3,000 | 3,000 | ||||
| Income tax expense | 21,000 | 18,000 | ||||
| Total expenses | 182,000 | 153,000 | ||||
| Earnings from continuing operations before extraordinary items | 32,000 | 27,000 | ||||
| Extraordinary gain (net of $3,000 tax) | 4,000 | 0 | ||||
| Netincome | $ | 36,000 | $ | 27,000 | ||
| Assets | ||||||
| Current assets | ||||||
| Cash | $ | 4,000 | $ | 8,000 | ||
| Marketablesecurities | 1,000 | 1,000 | ||||
| Accounts receivable | 35,000 | 32,000 | ||||
| Inventories | 100,000 | 96,000 | ||||
| Prepaid expenses | 3,000 | 2,000 | ||||
| Totalcurrent assets | 143,000 | 139,000 | ||||
| Plant and equipment (net) | 105,000 | 105,000 | ||||
| Intangibles | 20,000 | 0 | ||||
| Total assets | $ | 268,000 | $ | 244,000 | ||
| Liabilities and StockholdersâEquity | ||||||
| Liabilities | ||||||
| Current liabilities | ||||||
| Accounts payable | $ | 40,000 | $ | 54,000 | ||
| Other | 17,000 | 15,000 | ||||
| Totalcurrent liabilities | 57,000 | 69,000 | ||||
| Bonds payable | 66,000 | 67,000 | ||||
| Total liabilities | 123,000 | 136,000 | ||||
| Stockholdersâ equity | ||||||
| Common stock (50,000shares) | 115,000 | 115,000 | ||||
| Retained earnings | 30,000 | (7,000 | ) | |||
| Totalstockholdersâ equity | 145,000 | 108,000 | ||||
| Total liabilities and stockholdersâ equity | $ | 268,000 | $ | 244,000 | ||
| Required |
Calculate the following ratios for 2014 and 2015. When datalimitations prohibit computing averages, use year-end balances inyour calculations. |
| a. | Net margin.(Round your answers to 2 decimal places. (i.e., .2345should be entered as 23.45).) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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