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Module 6 Homework Assignment Use the information given in the green tabs to solve the questions below (answers in yellow, and show formulas used when applicable.) 1) Calcluate the following profitablility ratios: 2010 a) b) Percent return on net sales Percent return on assets employed i) What does the percent return on net sales indicate? ii) What does the percent return on assets employed indicate? iii) What does the change from 2009 to 2010 in the percent return on assets mean fo 2) The CFO wants a projection for 2011 showing a net profit margin of 25%. What changes would have to happen for the net profit to increase? 3) What was the long term debt to equity ratio in 2009. 2009 Ratio of Long Term Debt To Equity What does this mean? What is better a higher or lower ratio? 4) What are liquidity measures? Choose two ratios that assist in the determination of these measures. (show the answers for both year as well as the formula) - (hint see page 360-361 2010 2009 Ratio #1 Ratio #2 5) What are debt service (coverage) ratios What is the formula to use to determine debt service coverage 6) The two purple tabs show the breakdown of each division in this company. What types of items might you decide to "trend" based on the information shown (ie, if sales in one division declined from one year to the next, what kinds of trend start paying attention to. -- hint page 373 and 374) 7) Describe at least two things that could happen within this company that would m the controller to dig into the numbers and provide a write up to management. (for instance, the controller might notice that inventory has shrunk by over 50% w might he look for in the numbers and what ratios might he use to check things be e questions below plicable.) 2009 Formulas nt return on assets mean for the company? fit margin of 25%. to increase? Formulas ese measures. ) - (hint see page 360-361 of text) Formulas on in this company. on the information shown. e next, what kinds of trends might you want to his company that would make it necessary for ite up to management. has shrunk by over 50% what t he use to check things before alerting management) Newton Inc Statement of Income Revenues Rental Income Total Revenues Cost of Revenues Gross Profit Selling, General and Administrative Expenses Income from Operations Other Income (Expense): Interest Expense Interest Income Gain (Loss) from Foreign Currency Exchange Total Other Income (Expense) Total Income (loss) before Provision for Income Taxes Provision for Income Taxes Net Income 12/31/2010 12/31/2009 $ 18,000,000 18,000,000 $ 17,650,000 17,650,000 10,983,333 7,016,667 10,502,000 7,148,000 3,000,000 3,000,000 4,016,667 4,148,000 (16,000) 36,000 20,000 $ (17,000) 36,000 19,000 4,036,667 4,167,000 (1,009,167) (1,041,750) 3,027,500 $ 3,125,250 Newton Inc Balance Sheet 12/31/2010 12/31/2010 12/31/2009 $ $ Assets Current Assets: Cash and Equivalents Accounts Receivable, Net Inventory Prepaid Expenses and Other Current Assets 1,389,781 350,000 475,000 27,500 500,000 350,000 400,000 27,500 Total Current Assets 2,242,281 1,277,500 Property and Equipment, Net Other Assets 1,279,000 100,000 - 1,179,000 100,000 - Total Assets $ 3,621,281 $ 2,556,500 $ 686,211 26,842 350,000 27,500 $ 485,000 27,842 250,000 27,500 Liabilities and Stockholders' Equity Current Liabilities: Current Maturities of Long-Term Debt Accrued Other Accounts Payable Accrued Expenses $ Total Current Liabilities Long-Term Debt, Net of Current Maturities Accrued Other Long Term Total Liabilities Shareholders' Equity: Common Stock ( .50 par) Retained Earnings Less: Treasury Stock Total Stockholders' Equity Total Liabilities and Stockholders' Equity $ 1,090,553 790,342 45,000 1,135,554 475,000 45,000 1,310,343 - - 885,000 1,744,728 2,629,727 144,000 2,485,727 885,000 505,158 1,390,157 144,000 1,246,157 3,621,281 $ 2,556,500 - Statement of Retained Earnings for the Year Ended 2009 Beginning Retained Earnings, January 1 Plus Net Income Less Dividends Ending Retained Earnings 12/31/09 (2,000,000) 3,125,250 1,125,250 (620,092) 505,158 Statement of Retained Earnings for the Year Ended 2010 Beginning Retained Earnings, January 1 Plus Net Income Less Dividends Ending Retained Earnings 12/31/10 505,158 3,027,500 3,532,658 (1,787,930) 1,744,728 - 1,770,000 shares outstanding 0 Newton Inc Statements of Income Per Division YTD 12/31/10 Revenues Total Revenues Cost of Revenues Gross Profit Selling, General and Administrative Expenses Income from Operations Other Income (Expense): Interest Expense Interest Income Total Other Income (Expense) Income Before Provision for Income Taxes Provision for Income Taxes Income Net Income Shoes $ Clothing 10,500,000 10,500,000 $ 5,000,000 ### 5,000,000 Accessories $ 2,500,000 Total 2,500,000 $ 18,000,000 18,000,000 8,050,000 2,450,000 1,933,333 3,066,667 1,000,000 1,500,000 10,983,333 7,016,667 1,000,000 ### 1,000,000 3,000,000 1,450,000 2,066,667 500,000 4,016,667 (16,000) 12,000 (4,000) ### 12,000 ### 12,000 12,000 (16,000) 36,000 20,000 1,446,000 2,078,667 512,000 ### 4,036,667 361,500 519,667 128,000 ### 1,009,167 1,084,500 1,559,000 384,000 3,027,500 - ### - - $ 1,084,500 $ 1,559,000 $ 384,000 $ 3,027,500 $ 1,084,500 $ 1,559,000 $ 384,000 $ 3,027,500 Newton Inc Statements of Income Per Division YTD 12/31/09 Revenues Total Revenues Cost of Revenues Gross Profit Selling, General and Administrative Expenses Income from Operations Other Income (Expense): Interest Expense Interest Income Total Other Income (Expense) Income Before Provision for Income Taxes Provision for Income Taxes Income Net Income Shoes $ Clothing 9,500,000 9,500,000 $ 7,280,000 2,220,000 5,500,000 ### 5,500,000 Accessories $ 2,157,000 3,343,000 1,000,000 ### 1,220,000 2,343,000 (17,000) 12,000 (5,000) ### 2,650,000 Total 2,650,000 $ 17,650,000 17,650,000 1,065,000 1,585,000 10,502,000 7,148,000 1,000,000 3,000,000 585,000 4,148,000 12,000 ### 12,000 12,000 (17,000) 36,000 19,000 1,215,000 2,355,000 597,000 ### 4,167,000 303,750 588,750 149,250 ### 1,041,750 911,250 1,766,250 447,750 3,125,250 - - - ### $ 911,250 $ 1,766,250 $ 447,750 $ 3,125,250 $ 911,250 $ 1,766,250 $ 447,750 $ 3,125,250