Exercise 13-10 Suppose selected comparative statement data for the giant booksel

Question

Exercise 13-10

Suppose selected comparative statement data for the giant bookseller Barnes & Noble are presented here. All balance sheet data are as of the end of the fiscal year (in millions).

2017

2016

Net sales

Cost of goods sold

Net income

Accounts receivable

Inventory

Total assets

Total common stockholders’ equity

Compute the following ratios for 2017. (Round asset turnover to 2 decimal places, e.g 1.83 and all other answers to 1 decimal place, e.g. 1.8 or 2.5%)

2017

2016

Net sales

$4,950 $5,801

Cost of goods sold

3,701 3,701

Net income

65 191

Accounts receivable

75 107

Inventory

1,250 1,350

Total assets

2,950 3,150

Total common stockholders’ equity

931 1,111

Explanation / Answer

(a) Profit margin = Net Income / Net Sales = $65 / $4,950 = 1.3%

(b) Asset turnover =  Net sales / Average Total assets
= $4,950 / {(2,950 + 3,150) / 2} = 1.62 times

(c) Return on assets = Net Income / Average Total assets
   = $65 / {(2,950 + 3,150) / 2} = 2.1%

(d) Return on common stockholders’ equity = (Net Income - Preferred dividend) / Average common stockholders’ equity
= $65 / {($931 + $1,111) / 2} = 6.4%

(e) Gross profit rate = Gross profit / sales
= ($4,950 - 3,701) / $4,950 = 25.2%

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