Homework SourseSelected data from the financial statements of Italian Marbl
Selected data from the financial statements of Italian Marble Co. and Brazil Stone Products for the year just ended follow. Assume that for both companies, dividends declared were equal in amount to net earnings during the year, and therefore stockholders\' equity did not change. The two companies are in the same line of business.
a. Compute the net income for each company.
b. Compute the net income as a percentage of stockholders\' equity for each company.
c. Compute the accounts receivable turnover for each company.
d. Compute the inventory turnover for each company.
e. Which company is in a stronger financial position?
Compute the net income for each company.
Compute the net income as a percentage of stockholders\' equity for each company. (Round your answers to the nearest whole number.)
Compute the accounts receivable turnover for each company. (Round your answers to the nearest whole number.)
Compute the inventory turnover for each company. (Round your answers to 1 decimal place.)
| Italian Marble Co. | Brazil Stone Products | ||||||
| Total liabilities | $ | 200,000 | $ | 100,000 | |||
| Total assets | 800,000 | 400,000 | |||||
| Sales (all on credit) | 1,850,000 | 1,060,000 | |||||
| Average inventory | 240,000 | 140,000 | |||||
| Average receivables | 200,000 | 100,000 | |||||
| Gross profit as a percentage of sales | 40 | % | 30 | % | |||
| Operating expenses as a percentage of sales | 36 | % | 25 | % | |||
| Net income as a percentage of sales | 3 | % | 5 | % | |||
Solution
Solution:
e. Net profit percentage, return on stock holder equity, accounts receivable turnover ratio and inventory turnover ratio of Brazil stone product is much better than Italian marble company. Hence Brazil stone product is in a stronger financial position.
| S. No. | Particulars | Italian Marble Co | Brazil Stone Products |
| a | Sales | $1,850,000.00 | $1,060,000.00 |
| Net Income as percentage of Sales | 3% | 5% | |
| Net Income(Sales * NI Percentage) | $55,500.00 | $53,000.00 | |
| b | Net Income | $55,500.00 | $53,000.00 |
| Total Assets | $800,000.00 | $400,000.00 | |
| Total Liabilities | $200,000.00 | $100,000.00 | |
| Stock holders equity (Assets - Liabilities) | $600,000.00 | $300,000.00 | |
| Net Income as percentage of stock holder\'s equity (Net Income / Stockholder equity*100) | 9% | 18% | |
| c | Sales | $1,850,000.00 | $1,060,000.00 |
| Average Receivables | $200,000.00 | $100,000.00 | |
| Accounts Receivable Turnover (Sales / Average Receivables) | 9.25 Times | 10.60 Times | |
| d | Sales | $1,850,000.00 | $1,060,000.00 |
| Gross Profit as a percentage of Sales | 40% | 30% | |
| Gross Profit | $740,000.00 | $318,000.00 | |
| Cost of goods Sold (Sales - Gross Profit) | $1,110,000.00 | $742,000.00 | |
| Average Inventory | $240,000.00 | $140,000.00 | |
| Inventory Turnover Ratio (COGS / Average Inventory) | 4.625 Times | 5.30 Times |
