80.2K

Verified Solution

Link Copied!

Exercise 16-3 (Algo) Financial Ratios for Asset Management [LO16-3]

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 700,000 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 $27. All of the companys sales are on account.

Weller Corporation Comparative Balance Sheet (dollars in thousands)
	This Year	Last Year
Assets
Current assets:
Cash	$ 1,240	$ 1,340
Accounts receivable, net	11,000	8,300
Inventory	13,000	10,800
Prepaid expenses	770	660
Total current assets	26,010	21,100
Property and equipment:
Land	9,600	9,600
Buildings and equipment, net	58,132	42,385
Total property and equipment	67,732	51,985
Total assets	$ 93,742	$ 73,085
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$ 18,900	$ 19,400
Accrued liabilities	1,100	780
Notes payable, short term	230	230
Total current liabilities	20,230	20,410
Long-term liabilities:
Bonds payable	10,000	10,000
Total liabilities	30,230	30,410
Stockholders' equity:
Common stock	700	700
Additional paid-in capital	4,000	4,000
Total paid-in capital	4,700	4,700
Retained earnings	58,812	37,975
Total stockholders' equity	63,512	42,675
Total liabilities and stockholders' equity	$ 93,742	$ 73,085

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year	Last Year
Sales	$ 87,815	$ 66,000
Cost of goods sold	33,320	36,000
Gross margin	54,495	30,000
Selling and administrative expenses:
Selling expenses	11,300	10,400
Administrative expenses	7,000	7,000
Total selling and administrative expenses	18,300	17,400
Net operating income	36,195	12,600
Interest expense	1,000	1,000
Net income before taxes	35,195	11,600
Income taxes	14,078	4,640
Net income	21,117	6,960
Dividends to common stockholders	280	525
Net income added to retained earnings	20,837	6,435
Beginning retained earnings	37,975	31,540
Ending retained earnings	$ 58,812	$ 37,975

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.)

Answer & Explanation Solved by verified expert

See Answer