The 2018 income statement of Adrian Express reports sales of $22,710,000, cost o
ID: 2533071 • Letter: T
Question
The 2018 income statement of Adrian Express reports sales of $22,710,000, cost of goods sold of $13,100,000, and net income of $2,380,000. Balance sheet information is provided in the following table.
Industry averages for the following profitability ratios are as follows:
Required:
1. Calculate the five profitability ratios listed above for Adrian Express. (Round your answers to 1 decimal place.)
ADRIAN EXPRESSBalance Sheet
December 31, 2018 and 2017 2018 2017 Assets Current assets: Cash $ 1,040,000 $ 1,030,000 Accounts receivable 2,025,000 1,355,000 Inventory 2,595,000 1,925,000 Long-term assets 5,240,000 4,510,000 Total assets $ 10,900,000 $ 8,820,000 Liabilities and Stockholders' Equity Current liabilities $ 2,294,000 $ 1,964,000 Long-term liabilities 2,706,000 2,704,000 Common stock 2,325,000 2,155,000 Retained earnings 3,575,000 1,997,000 Total liabilities and stockholders' equity $ 10,900,000 $ 8,820,000
Explanation / Answer
Working // Calculation of the Ratios :-
1. Gross Profit Ratio = (Gross Profit / Sales) * 100
= {(Sales - Cost of Goods Sold) / Sales} *100
= {($22,710,000 - $13,100,000) / $22,710,000} * 100
= 42.32 %
2. Return on Assets = (Net Income / Total Assets) * 100
= ($2,380,000 / $10,900,000) * 100
= 21.83%
3. Profit Margin = (Net Profit or Net Income / Net sales or Net revenue) * 100
= ($2,380,000 / 22,710,000) * 100
= 10.48%
4. Asset Turnover Ratio = Net sales during the year / Average total assets
= $22,710,000 / {($8,820,000 + $10,900,000)/2}
= 2.30 Times
5. Return on Equity = Net Income / Shareholder's Equity (Common Stock + Retained Earnings)
= $2,380,000 / ($2,325,000 + $3,575,000) *100
= 40.33 %
Particulars Industry Averages Adrian Express Ratios Gross Profit Ratio 45 % 42.32 % Return on Assets 25 % 21.83 % Profit Margin 15 % 10.48 % Asset Turnover Ratio 2.5 Times 2.30 Times Return on Equity 35 % 40.33 %Related Questions
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