I already made this equations: Profitability Profit Margin NI = 2,898 = 4.16% 13
ID: 2435844 • Letter: I
Question
I already made this equations:
Profitability
Profit Margin
NI = 2,898 = 4.16% 13,294 = 3.25%
Net Sales 69,654 408,748
Asset Turnover
Net Sales = 69,654 = 1.55 times = 408,748 = 2.38 times
Avg. Assets 44,933.50 171,579
Return on Assets
NI = 2,898 = 6.45% = 13,394 = 7.75%
Selected Fnancial Information of Reflect Corporation and Tranquility, Inc.
Instructions:
Utilizing the results of the above ratio calculations for Reflect Corporation and Tranquility, Inc., respectively, complete the following:
Evaluate and compare in detail the companies’ profitability.
I already made this equations:
Profitability
Profit Margin
NI = 2,898 = 4.16% 13,294 = 3.25%
Net Sales 69,654 408,748
Asset Turnover
Net Sales = 69,654 = 1.55 times = 408,748 = 2.38 times
Avg. Assets 44,933.50 171,579
Return on Assets
NI = 2,898 = 6.45% = 13,394 = 7.75%
Avg. Assets 44,933.50 171,579Selected Fnancial Information of Reflect Corporation and Tranquility, Inc.
(In Millions)
Reflect Corporation
Tranquility, Inc.
Income Statements For the Year Ended Dec 31, 2010 Net Sales (all credit sales) $69,654
$408,748 - Cost of Goods Sold 48,356
312,645 Gross Profit 21,298
96,103 - Selling and administrative expenses 17,820
77,932 + Other income (expense) 2,086
4,700 Income before income taxes and interest expense 5,564
22,871 - Interest expense 712
1,978 - Income tax expense 1,954
7,599 Net income $2,898
$13,294
Balance Sheets as of Dec 31, 2009 (2010 beg balances) Assets:
Current assets:
Cash $3,469
$1,678 Account receivable 8,200
3,600 Inventory 7,076
37,112 Total current assets 18,745
42,390 Total noncurrent assets 23,458
124,565 Total assets $42,203
$166,955
Liabilities & Equity:
Current liabilities 11,467
61,569 Total noncurrent liabilities 11,659
41,652 Total liabilities 23,126
103,221 Total stockholders' equity 19,077
63,734 Total liabilities & stockholders' equity $42,203
$166,955
Balance Sheets as of Dec 31, 2010 (2010 end balances) Assets:
Current assets:
Cash $5,214
$12,644 Account receivable 7,587
3,489 Inventory 6,996
38,552 Total current assets 19,797
54,685 Total noncurrent assets 27,867
121,518 Total assets $47,664
$176,203
Liabilities & Equity:
Current liabilities 12,229
63,456 Total noncurrent liabilities 18,793
41,652 Total liabilities 31,022
105,108 Total stockholders' equity 16,642
71,095 Total liabilities & stockholders' equity $47,664
$176,203
IMPORTANT NOTE: When a ratio formula involves a balance sheet account,
such as current assets, use the balance as of the end of the year. If the
formula specifically asks for an average, add the beginning and ending balances
and divide by two.
Explanation / Answer
According to profit margin and return on assets, I come to a conclusion that company is not making profits very well, and can incur losses in future. Return on assets shows the percentage (efficiency) of all assets utilized by a firm, and in this example it comes to 7.75% only, while if this firm borrow money from bank, or take loans for investing activities (i.e. buying and selling of property plant & equipment, furniture, machinery and any other long-term asset), then bank might require an interest of min. 15% to max. 35%, which quite riskier for the firm to pay, as firm is making profit of only 7.75%, so according to me, this firm is not going very well.
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