The 2018 income statement of Adrian Express reports sales of $22,110,000, cost o

Question

The 2018 income statement of Adrian Express reports sales of $22,110,000, cost of goods sold of $12,950,000, and net income of $2,260,000. 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.

ADRIAN EXPRESS
Balance Sheet
December 31, 2018 and 2017   2018   2017 Assets   Current assets:        Cash $ 980,000   $ 1,000,000          Accounts receivable 1,950,000   1,310,000          Inventory 2,490,000   1,850,000     Long-term assets 5,180,000   4,480,000                Total assets $ 10,600,000   $ 8,640,000        Liabilities and Stockholders' Equity   Current liabilities $ 2,228,000   $ 1,928,000     Long-term liabilities 2,652,000   2,668,000     Common stock 2,250,000   2,110,000     Retained earnings 3,470,000   1,934,000                Total liabilities and stockholders' equity $ 10,600,000   $ 8,640,000     

Explanation / Answer

ADRIAN EXPRESS Balance Sheet December 31, 2018 and 2017   2018   2017 Average   Assets   Current assets:        Cash $ 980000 $ 1000000              990,000        Accounts receivable 1950000 1310000          1,630,000        Inventory 2490000 1850000          2,170,000   Long-term assets 5180000 4480000          4,830,000           Total assets $ 10600000 $ 8640000          9,620,000      Liabilities and Stockholders' Equity   Current liabilities $ 2228000 $ 1928000          2,078,000   Long-term liabilities 2652000 2668000          2,660,000   Common stock 2250000 2110000          2,180,000   Retained earnings 3470000 1934000          2,702,000           Total liabilities and stockholders' equity $ 10600000 $ 8640000          9,620,000 Gross Profit ratio = (sales-COGS)/sales (22,110,000-12,950,000)/22,110,000 41.43% Return on assets = Net Income/Average total assets 2260000/9620000 23.49% Profit Margin = Net Income/Sales 2260000/22110000 10.22% Assets Tunover = Sales/Avrage total assets 22110000/9620000                                                                                      2.30 times return on equity = net income/average equity 2260000/(2180000+2702000) 46.29%

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