Table 3.1 in Chapter 3 presents financial statements over the period 2011 to 201
ID: 2712191 • Letter: T
Question
Table 3.1 in Chapter 3 presents financial statements over the period 2011 to 2014 for R&E Supplies Inc.
a) Use these statements to calculate as many of the ratios in Table 2.2 as you can.
b) What insights do these ratios provide about R&E’s financial performance? What problems, if any, does the company appear to have?
TABLE3.1 Financial Statements for R&E; Supplies, Inc, December 31, 2011-2014 (S thousands) Income Statements 2014* S20,613 17,727 2,886 2011 2012 S13,764 11,699 2,065 2013 Net sales Cost of goods sold Gross profit S11.190 9,400 1.790 $16,104 13,688 2,416 General, selling, and administrative expenses Net interest expense 1,019 100 1,239 103 1,610 110 2,267 90 Earnings before tax 313 S 383 Earnings after tax S 369 S 398 S 291 Balance Sheets Current assets Cash and securities Accounts receivable Inventories Prepaid expenses S 671 1,343 1,119 14 3,147 128 S 3.275 $ 551 1,789 1.376 12 3,728 124 $ 3,852 S 644 S 412 2,886 2,267 1,932 15 4,685 295 4,980 Total current assets Net fixed assets Total assets 5,583 287 S 5,870 Liabilities and Owners Equity Currentliabilities: Bank loan Accounts payable Current portion long term debt Accrued wages 1,007 60 3,212 100 1.443 2,426 Total current liabilities 1,550 910 150 1,242 $3,852 1.122 2,536 3,380 760 150 1,580 S 5,870 Long-term debt Common stock Retained eamings Total liabilities and owners equity 150 1,043 S 3,275 150 1,434 S 4,980Explanation / Answer
I will be giving the formulaes , how to calculate the ratios. Using these you can calculate across the years.
Profitability Ratios:
Return on Equity(%)= (Earning after tax/(common stock+retained earnings))
For 2011 : (369/(1043+150))=31%
Return on Assets(%)= Earning after tax/ Assets
For 2011: (369/3275)=11%
Profit margin(%)=( Earning after tax/Net sales)
For 2011: (369/11190)=3%
Gross margin(%)=(gross profit/sales)
For 2011: (1790/11190)=16%
Asset Turnover:
Fixed assets Turnover= (Net sales/ Assets)
For 2011 :(11190/3275)=3.42
Inventory Turnover= (COGS/inventory)
For 2011 :(9400/1119)=8.4
Collection Period= 365*(Account Receivable/sales)
For 2011: (365*1343/11190)=43.8 days
Payable period= 365*(Account payable/Sales)
For 2011: (365*1007/11190)=32.85 days
Leverage and Liquidity Ratio:
Debts to assets= ((Current Liablities+Long term debt)/ total assets)
For 2011: (1122+960)/3275=0.64
Debt to equity=((Current Liablities+Long term debt)/ (Common stock+retained earnings)
For 2011: (1122+960)/(150+1043)=1.75
Times Interest earned= EBIT/interest expense
For 2011: (1790-1019)/100=7.71
Current Ratio= Current assets/current liabilty
For 2011: (3147/1122)=2.81
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