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Exercise 15-3 Financial Ratios for Asset Management [LO15-3]

Comparative financial statements for Weller Corporation, a merchandising company, for the year ending December 31 appear below. The company did not issue any new common stock during the year. A total of 500,000 shares of common stock were outstanding. The interest rate on the bond payable was 10%, the income tax rate was 40%, and the dividend per share of common stock was $0.75 last year and $0.40 this year. The market value of the companys common stock at the end of this year was $26. All of the companys sales are on account.

Weller Corporation Comparative Balance Sheet (dollars in thousands)
	This Year			Last Year
Assets
Current assets:
Cash	$	1,080		$	1,380
Accounts receivable, net		10,600			7,200
Inventory		13,800			11,400
Prepaid expenses		770			700
Total current assets		26,250			20,680
Property and equipment:
Land		10,900			10,900
Buildings and equipment, net		43,409			39,387
Total property and equipment		54,309			50,287
Total assets	$	80,559		$	70,967
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	18,900		$	18,200
Accrued liabilities		1,010			780
Notes payable, short term		170			170
Total current liabilities		20,080			19,150
Long-term liabilities:
Bonds payable		9,800			9,800
Total liabilities		29,880			28,950
Stockholders' equity:
Common stock		500			500
Additional paid-in capital		4,000			4,000
Total paid-in capital		4,500			4,500
Retained earnings		46,179			37,517
Total stockholders' equity		50,679			42,017
Total liabilities and stockholders' equity	$	80,559		$	70,967

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	79,210		$	64,000
Cost of goods sold		45,360			35,000
Gross margin		33,850			29,000
Selling and administrative expenses:
Selling expenses		11,200			10,100
Administrative expenses		6,900			7,000
Total selling and administrative expenses		18,100			17,100
Net operating income		15,750			11,900
Interest expense		980			980
Net income before taxes		14,770			10,920
Income taxes		5,908			4,368
Net income		8,862			6,552
Dividends to common stockholders		200			375
Net income added to retained earnings		8,662			6,177
Beginning retained earnings		37,517			31,340
Ending retained earnings	$	46,179		$	37,517

Required:

Compute the following financial data for this year:

1. Accounts receivable turnover. (Assume that all sales are on account.) (Round your answer to 2 decimal places.)

2. Average collection period. (Use 365 days in a year. Round your intermediate calculations and final answer to 2 decimal places.)

3. Inventory turnover. (Round your answer to 2 decimal places.)

4. Average sale period. (Use 365 days in a year. Round your intermediate calculations and final answer to 2 decimal places.)

5. Operating cycle. (Round your intermediate calculations and final answer to 2 decimal places.)

6. Total asset turnover. (Round your answer to 2 decimal places.)

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