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Exercise 12-5 Evaluate risk ratios [LO3]

The 2012 income statement of Adrian Express reports sales of $16 million, cost of goods sold of $9.6 million, and net income of $1.6 million. Balance sheet information is provided in the following table. All amounts are in thousands.

ADRIAN EXPRESS Balance Sheets December 31, 2012 and 2011
($ in 000s)	2012	2011
Assets
Current assets:
Cash	$	600	$	760
Accounts receivable		1,400		1,000
Inventory		1,800		1,400
Long-term assets		4,800		4,240

Total assets	$	8,600	$	7,400

Liabilities and Stockholders' Equity
Current liabilities	$	2,020	$	1,660
Long-term liabilities		2,300		2,400
Common stock		2,000		2,000
Retained earnings		2,280		1,340

Total liabilities and stockholders' equity	$	8,600	$	7,400

Industry averages for the following four risk ratios are as follows:


Average collection period	25 days
Average days in inventory	60 days
Current ratio	2 to 1
Debt to equity ratio	50%

Required:

1.	Calculate the four risk ratios listed above for Adrian Express in 2012. (Use 365 days in a year. Round your answers to 1 decimal place. Omit the "%" sign in your response.)

Risk Ratios
Average collection period		days
Average days in inventory		days
Current ratio		to 1
Debt to equity ratio		%

2.	Do you think the company is more risky or less risky than the industry averages?

ADRIAN EXPRESS Balance Sheet December 31, 2012 and 2011
($ in 000s)	2012	2011
Assets
Current assets:
Cash	$	600	$	760
Accounts receivable		1,400		1,000
Inventory		1,800		1,400
Long-term assets		4,800		4,240

Total assets	$	8,600	$	7,400

Liabilities and Stockholders' Equity
Current liabilities	$	2,020	$	1,660
Long-term liabilities		2,300		2,400
Common stock		2,000		2,000
Retained earnings		2,280		1,340

Total liabilities and stockholders' equity	$	8,600	$	7,400

Industry averages for the following four risk ratios are as follows:


Gross profit ratio	45	%
Return on assets	25	%
Profit margin	15	%
Asset turnover	2.5	times
Return on equity	35	%

Required:

1.	Calculate the five profitability ratios listed above for Adrian Express. (Round your answers to the nearest whole number. Omit the "%" sign in your response.)

Profitability Ratios
Gross profit ratio	%
Return on assets	%
Profit margin	%
Asset turnover	times
Return on equity	%

2.	Do you think the company is more profitable or less profitable than the industry averages?


The balance sheet for Plasma Screens Corporation and additional information are provided below.

PLASMA SCREENS CORPORATION Balance Sheet December 31, 2012 and 2011
	2012	2011
Assets
Current assets:
Cash	$	112,000	$	120,000
Accounts receivable		78,000		92,000
Inventory		95,000		80,000
Investments		4,000		2,000
Long-term assets:
Land		480,000		480,000
Equipment		90,000		670,000
Less: Accumulated depreciation		(428,000)		(268,000)

Total assets	$	1,131,000	$	1,176,000

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	99,000	$	85,000
Interest payable		6,000		12,000
Income tax payable		8,000		5,000
Long-term liabilities:
Notes payable		100,000		200,000
Stockholders' equity:
Common stock		700,000		700,000
Retained earnings		218,000		174,000

Total liabilities and stockholders' equity	$	1,131,000	$	1,176,000

Additional information for 2012:
1.	Net income is $69,000.
2.	Sales on account are $1,520,000.
3.	Cost of goods sold is $1,160,000.

references

Section Break

Exercise 12-7 Calculate risk ratios [LO3]

value: 2.00 points

Exercise 12-7 Part 1

Required:

1.	Calculate the following risk ratios for 2012 (Round your answers to 1 decimal place. Omit the "%" sign in your response):

Risk Ratios
a.	Receivables turnover ratio	times
b.	Inventory turnover ratio	times
c.	Current ratio	to 1
d.	Acid-test ratio	to 1
e.	Debt to equity ratio	%

check my work eBook Link View Hint #1 references

Worksheet	Difficulty: Hard
Exercise 12-7 Part 1	Learning Objective: 12-03 Use ratios to analyze a company’s risk.

value: 1.00 points

Exercise 12-7 Part 2

2.	When we compare two companies, can one have a higher current ratio while the other has a higher acid-test ratio?

	Yes
	No

Exercise 12-9 Calculate profitability ratios [LO4]

[The following information applies to the questions displayed below.]

The following condensed information is reported by Sporting Collectibles.

	2013	2012
Income Statement Information
Sales revenue	$	10,400,000	$	8,400,000
Cost of goods sold		6,800,000		5,900,000
Net income		360,000		248,000

Balance Sheet Information
Current assets	$	1,600,000	$	1,500,000
Long-term assets		2,200,000		1,900,000

Total assets	$	3,800,000	$	3,400,000

Current liabilities	$	1,200,000	$	900,000
Long-term liabilities		1,500,000		1,500,000
Common stock		800,000		800,000
Retained earnings		300,000		200,000

Total liabilities and stockholders' equity	$	3,800,000	$	3,400,000

references

Section Break

Exercise 12-9 Calculate profitability ratios [LO4]

value: 2.00 points

Exercise 12-9 Part 1

Required:

1.	Calculate the following profitability ratios for 2013 (Round your answers to 1 decimal place. Omit the "%" sign in your response):

Profitability Ratios
a.	Gross profit ratio	%
b.	Return on assets	%
c.	Profit margin	%
d.	Asset turnover	times
e.	Return on equity	%

check my work eBook Link View Hint #1 references

Worksheet	Difficulty: Hard
Exercise 12-9 Part 1	Learning Objective: 12-04 Use ratios to analyze a companys profitability.

value: 1.00 points

Exercise 12-9 Part 2

2.	Determine the amount of dividends paid to shareholders in 2013. (Omit the "$" sign in your response.)

The amount of dividends paid

check my work eBook Link View Hint #1 references

Worksheet	Difficulty: Hard
Exercise 12-9 Part 2	Learning Objective: 12-04 Use ratios to analyze a companys profitability.