Assignment
1. Arkansas Homes Inc. shows the following data:
|
Year
|
Net Income
|
Total Assets
|
Stockholders' Equity
|
Total Debt
|
|
2011
|
$180,000
|
$2,390,000
|
$ 761,000
|
$1,629,000
|
|
2012
|
216,000
|
2,700,000
|
966,000
|
1,734,000
|
|
2013
|
243,000
|
2,730,000
|
1,770,000
|
960,000
|
|
2014
|
257,000
|
2,470,000
|
2,220,000
|
250,000
|
a. Compute the ratio of net income to total assets for each year and comment on the trend (round your percentage answer to two decimal places).
b. Compute the ratio of net income to stockholders' equity and comment on the trend (round your percentage answer to two decimal places). Explain why there may be a difference in the trends between parts a and b.
2. Given the financial statements for Able and Aztech Corporations shown below:
a. Compute all 13 ratios for both companies. Show all calculations.
b. To which company would you, as a Credit Manager for a supplier, approve the extension of credit? Why?
c. In which company would you buy stock? Why?
d. As an industry analyst, what observations would you make for each company?
|
Able CORPORATION
|
|
Current Assets:
|
|
Liabilities:
|
|
|
Cash
|
$35,000
|
Acct. Payable
|
$75,000
|
|
Marketable Securities
|
$7,500
|
Bonds
|
$210,000
|
|
Accounts Receivable
|
$70,000
|
|
|
|
Inventory
|
$75,000
|
|
|
|
Long - Term Assets:
|
|
Stockholders' Equity
|
|
|
Fixed Assets
|
$500,000
|
Common Stock
|
$75,000
|
|
Accumulated Depr.
|
($250,000)
|
Paid in Capital
|
$30,000
|
|
Net Fixed assets
|
$250,000
|
Retained Earnings
|
$47,500
|
|
Total Assets
|
$437,500
|
Total S.E & Liabilities
|
$437,500
|
|
Sales
|
$1,100,000
|
|
|
|
Cost of Goods Sold
|
($600,000)
|
|
|
|
Gross Profit
|
$500,000
|
|
|
|
SG&A expenses
|
($224,000)
|
|
|
|
Depr. Expense
|
($50,000)
|
|
|
|
Operating Profit
|
$226,000
|
|
|
|
Interest Expense
|
($21,000)
|
|
|
|
Earnings before taxes
|
$205,000
|
|
|
|
Tax expense
|
($52,500)
|
|
|
|
Net Income
|
$152,500
|
|
|
Notes:
*Use net fixed assets in computing fixed asset turnover.
*SG&A includes $10,500 in lease payments.
|
Aztech CORPORATION
|
|
Current Assets:
|
|
Liabilities:
|
|
|
Cash
|
$20,000
|
Acct. Payable
|
$100,000
|
|
Accounts Receivable
|
$80,000
|
Bonds
|
$80,000
|
|
Inventory
|
$50,000
|
|
|
|
Long - Term Assets:
|
|
Stockholders' Equity
|
|
Fixed Assets
|
$500,000
|
Common Stock
|
$150,000
|
|
Accumulated Depr.
|
($150,000)
|
Paid in Capital
|
$70,000
|
|
Net Fixed assets
|
$350,000
|
Retained Earnings
|
$100,000
|
|
Total Assets
|
$500,000
|
Total S.E & Liabilitie
|
$500,000
|
|
Sales
|
$1,325,000
|
|
|
|
Cost of Goods Sold
|
($750,000)
|
|
|
|
Gross Profit
|
$575,000
|
|
|
|
SG&A expenses
|
($257,000)
|
|
|
|
Depr. Expense
|
($50,000)
|
|
|
|
Operating Profit
|
$268,000
|
|
|
|
Interest Expense
|
($8,000)
|
|
|
|
Earnings before taxes
|
$260,000
|
|
|
|
Tax expense
|
($92,500)
|
|
|
|
Net Income
|
$167,500
|
|
|
Notes:
*Use net fixed assets in computing fixed asset turnover.
*SG&A includes $23,000 in lease payments.