Consider the following ifnormation for HandyCraft Stores for 2014 and 2015. Noni

Question

Consider the following ifnormation for HandyCraft Stores for 2014 and 2015.

Noninterest-bearing current liabilities

Net income

Interest expense

Sales

Tax Rate

1) Compute ROI for both years.

2) Break ROI down into profit margin and investment turnover.

3) Comment on the change in financial performance between 2014 and 2015.

2014 2015 Total Assets $59,500,000 $56,430,000

Noninterest-bearing current liabilities

4,400,000 4,950,000

Net income

3,650,000 4,950,000

Interest expense

2,420,000 2,975,000

Sales

66,000,000 96,250,000

Tax Rate

40% 40%

Explanation / Answer

Answer:

2014($) 2015(S) Total Assets       59,500,000                                   56,430,000 Non interest-bearing current liabilities         4,400,000                                     4,950,000 (a)Stockholder's equity and long-term debts       55,100,000                                   51,480,000 (b)Sales       66,000,000                                   96,250,000 Net income 3,650,000 4,950,000 Less:Interest expense 2,420,000 2,975,000 Earning before tax 1,230,000 1,975,000 Tax 40% 492,000 790,000 Earning after tax 738,000 1,185,000 Add:Interest expense 2,420,000 2,975,000 (c) Earning on investment         3,158,000                                     4,160,000 (1) ROI (c) /(a) 5.73% 8.08% (2) Profit Margin ( c )/ (b) 4.78% 4.32% (3) Investment Turnover (b)/(a) 1.20 1.87

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