Common-size financial statements) The Solisto Construction Company expects to ha
ID: 2569444 • Letter: C
Question
Common-size financial statements) The Solisto Construction Company expects to have total sales next year totaling $15,000,000. In addition, the firm pays taxes at 35 percent and will owe $300,000 in interest expense. Based on last year’s operations, the firm’s management predicts that its cost of goods sold will be 60 percent of sales and operating expenses will total 30 percent. What is your estimate of the firm’s net income (after taxes) for the coming year?
2. (Financial ratios) The balance sheet and income statement for the R& H Mfg. Company are as follows:
R& H Mfg., Inc. Balance Sheet ($000)
Cash
$500
Accounts receivable
2,000
Inventories
1,000
Current assets
3,500
Net fixed assets
4,500
Total assets
$8,000
Accounts payable
$1,100
Accrued expenses
600
Short-term notes payable
300
Current liabilities
$2,000
Long-term debt
2,000
Owners’ equity
4,000
Total liabilities and owners’ equity
$8,000
R& H Mfg., Inc. Income Statement ($000)
Net sales (all credit)
$8,000
Cost of goods sold
-3,300
Gross profit
$4,700
Operating expenses (includes $500 depreciation)
-3,000
Net operating income
$1,700
Interest expense
-367
Earnings before taxes
$1,333
Income taxes (40%)
-533
Net income
$ 800
Calculate the following ratios:
Current ratio
Times interest earned
Inventory turnover
Total asset turnover
Operating profit margin
Operating return on assets
Debt ratio
Average collection period
Fixed asset turnover
Return on equity
R& H Mfg., Inc. Balance Sheet ($000)
Cash
$500
Accounts receivable
2,000
Inventories
1,000
Current assets
3,500
Net fixed assets
4,500
Total assets
$8,000
Accounts payable
$1,100
Accrued expenses
600
Short-term notes payable
300
Current liabilities
$2,000
Long-term debt
2,000
Owners’ equity
4,000
Total liabilities and owners’ equity
$8,000
Explanation / Answer
1)
2)acurrent ratio =Current asset /current liabilities
= 3500/2000
= 1.75
b)Times interest earned =Earning before interest and tax/interest
=1700/367
= 4.63
c)Inventory turnover =Cost of sales/inventory
= 3300/1000
= 3.3 times
Total asset turnover =sales /Total asset
= 8000/8000
=1
d)operating margin = operating income/sales
= 1700/8000
= .2125 or 21.25%
operating return on asset =operating income /asset invested
= 1700/8000
= 21.25%
Debt ratio =Total liabilites/total asset
= [2000+2000]/8000
= 4000/8000
= .50
Average collection period =365*average receivable/sales
= 365*2000/8000
= 91.25 days
fixed asset turnover =sales /fixed asset
= 8000/4500
= 1.78
Return on equity =net income/equity
= 800/4000
= .20 or 20%
sales 15,000,000 less:cost of sales [15000000*.60] -9,000,000 operating expense [15000000.30] -4,500,000 Earning before interest and tax 1,500,000 less:Interest 300,000 Earning before tax 1,200,000 less:tax [1200000*.35] -420000 net income 780,000Related Questions
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