Case 132

Amerbran Company (B)* 390 Part 1 Financial Accounting 2011 2010 Acid-test ratio 0.671 0.556 Current ratio 1.172 1.088 Inventory turnover (times) 10.005 8.400 Days receivables 39.66 27.17 Gross margin percentage 15.12 16.50 Profit margin percentage 2.831 4.090 Invested capital turnover (times) 2.091 2.355 Debt/equity ratio (percentage) 62.15 40.68 Return on shareholders equity ? 13.55 EXHIBIT 2 Selected Ratios Using the 20x1 financial statements in Amerbran Company (A), Case 112, together with the 20x0 income statement shown in Exhibit 1 below, calculate the ratios listed below for 20x0 and 20x1. Use yearend amounts for ratios that involve balance sheet data. The companys interest expense in 20x0 and 20x1 was (in thousands) $105,165 and $102,791, respectively. 1. Return on assets. 2. Return on equity. 3. Gross margin percentage. 4. Return on sales. 5. Asset turnover. 6. Days cash (20x1 only). 7. Days receivables. 8. Days inventories. 9. Inventory turnover. 10. Current ratio. 11. Acid-test ratio. 12. Debt/capitalization ratio. 13. Times interest earned. Questions 1. Comment on Amerbrans treatment of excise taxes as part of the calculation of gross margin. 2. As an outside analyst, what questions would you want to ask Amerbrans management based on the ratios you have calculated? EXHIBIT 1 AMERBRAN COMPANY Income Statement For the Year Ended December 31, 20x0 (in thousands) Sales revenue, net $_6__,5_7_7__,4_8_0_ Cost of sales 2,573,350 Excise taxes on goods sold _2_,_3_5_4_,_3_5_0_ Gross margin 1,649,780 Selling, general, and administrative expenses ___9_7_4_,_1_2_1_ Income before income taxes 675,659 Provision for income taxes ___2_9_6_,_8_7_7_ Net income $_ __3_7_8_,_7_8_2_ __________

EXHIBIT 1 AMERBRAN COMPANY Balance Sheets As of December 31, 20x1 and 20x0 (in thousands) 20x1 20x0 Assets Cash $ 28,912 $ 23,952 Accounts receivable 756,152 687,325 Inventories 1,244,912 1,225,402 Prepaid expenses ____7_6_,_1_4_0_ ____7_7_,_1_6_7_ Total current assets 2,106,116 2,013,846 Investments _1_,_1_1_6_,_5_3_4_ _1_,_0_5_8_,_6_3_7_ Property, plant, and equipment, at cost 1,566,268 1,366,719 Less accumulated depreciation ___7_2_3_,_4_4_2_ ___6_4_5_,_7_3_4_ Net property, plant, and equipment 842,826 720,985 Goodwill 645,210 577,606 Other assets ___1_1_5_,_8_2_6_ ____6_2_,_3_7_4_ Total assets $__4__,__8__2__6__,__5__1__2__ $__4__,__4__3__3__,__4__4__8__ Liabilities and Shareholders Equity Accounts payable $ 271,452 $ 238,377 Short-term debt 430,776 351,112 Accrued expenses payable ___9_2_2_,_9_9_0_ ___7_2_8_,_2_6_2_ Total current liabilities 1,625,218 1,317,751 Long-term liabilities ___8_8_0_,_6_7_4_ ___9_3_2_,_8_2_8_ Total liabilities _2_,_5_0_5_,_8_9_2_ _2_,_2_5_0_,_5_7_9_ Convertible preferred stock 33,828 42,611 Common stock, at par 322,834 161,417 Additional paid-in capital 53,641 57,072 Treasury stock, at cost (110,948) (102,705) Retained earnings _2_,_0_2_1_,_2_6_5_ _2_,_0_2_4_,_4_7_4_ Total shareholders equity _2_,_3_2_0_,_6_2_0_ _2_,_1_8_2_,_8_6_9_ Total liabilities and shareholders equity $__4__,__8__2__6__,__5__1__2__ $__4__,__4__3__3__,__4__4__8__ Income Statement For the year ended December 31, 20x1 (in thousands) Sales revenues, net $__7_,_6_2_2_,_6_7_7_ Cost of sales 2,803,623 Excise taxes on goods sold __2_,_8_8_7_,_6_1_6_ Gross margin 1,931,438 Selling, general, and administrative expenses __1_,_3_2_8_,_1_0_7_ Income before income taxes 603,331 Provision for income taxes ____2_7_4_,_5_5_8_ Net income $____3_2_8_,_7_7_3_