Question
Consider the following condensed financial statements of Safe Money, Inc. The company's target rate of return is 10%: Requirement 1. Calculate the company's ROI. Round
Consider the following condensed financial statements of Safe Money, Inc. The company's target rate of return is 10%:
Requirement 1. Calculate the company's ROI. Round all of your answers to four decimal places.
Begin by selecting the formula to calculate return on investment (ROI), and then enter the amounts to calculate the company's ROI. (Round your calculations to four decimal places and enter your final to the nearest hundredth of a percent, X.XX%)
|
|
| = | ROI | ||
|
|
| = |
| % | |
Requirement 2. Calculate the company's profit margin ratio. Interpret your results.
Begin by selecting the formula to calculate profit margin ratio, and then enter the amounts to calculate the company's profit margin ratio. (Enter your final to the nearest hundredth of a percent, X.XX%)
|
|
| = | Profit margin ratio | ||
|
|
| = |
| % | |
| The company's profit margin ratio tells us that they earn |
| of |
| for every dollar of | |
|
| . | ||||
Requirement 3. Calculate the company's asset turnover ratio. Interpret your results.
Begin by selecting the formula to calculate asset turnover ratio, and then enter the amounts to calculate the company's asset turnover ratio.
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|
| = | Asset turnover ratio | ||
|
|
| = |
| ||
| The company's asset turnover ratio explains how efficiently a company uses its |
| to generate | |||
|
| . The company is generating |
| of |
| with every $1.00 of |
|
| . | ||||
Requirement 4. Use the expanded ROI formula to confirm your results from Requirement 1. Interpret your results.
First, select the expanded ROI formula.
|
|
| = | ROI | ||
| Using the expanded formula, the ROI for Safe Money, Inc. is |
| %. |
To determine what is driving a company's ROI, management often restates the ROI equation in its expanded form. The ROI calculated with the expanded formula
agrees
does not agree
with the ROI calculated in Requirement 1.
Requirement 5. Calculate the company's RI. Interpret your results.
First, select the formula to calculate residual income (RI).
|
| ( |
|
| ) | = | RI |
|
| The RI for Safe Money, Inc. is |
| . |
Safe Money, Inc.
is
exceeding
not meeting
management's target rate of return.
| Safe Money, Inc. | |
| Income Statement | |
| For the Year Ended December 31, 2024 | |
| Net Sales Revenue | $1,000,000 |
| Cost of Goods Sold | 600,000 |
| Gross Profit | 400,000 |
| Operating Expenses | 300,000 |
| Operating Income | 100,000 |
| Other Income and (Expenses): |
|
| Interest Expense | (1,500) |
| Income Before Income Tax Expense | 98,500 |
| Income Tax Expense | 34,475 |
| Net Income | $64,025 |
| Safe Money, Inc. | ||
| Comparative Balance Sheet | ||
| As of December 31, 2024 and 2023 | ||
|
| 2024 | 2023 |
| Assets | ||
| Cash | $67,000 | $55,000 |
| Accounts Receivable | 52,200 | 20,800 |
| Supplies | 4,000 | 3,400 |
| Property, Plant, and Equipment, net | 319,800 | 220,800 |
| Patents, net | 141,000 | 116,000 |
| Total Assets | $584,000 | $416,000 |
| Liabilities and Stockholders' Equity | ||
| Accounts Payable | $20,000 | $22,000 |
| Short-term Notes Payable | 139,000 | 45,000 |
| Long-term Notes Payable | 187,000 | 117,500 |
| Common Stock, no Par | 223,000 | 227,000 |
| Retained Earnings | 15,000 | 4,500 |
| Total Liabilities and Stockholders' Equity | $584,000 | $416,000 |
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Horngrens Financial and Managerial Accounting
Authors: Tracie L. Nobles, Brenda L. Mattison, Ella Mae Matsumura
5th edition
9780133851281, 013385129x, 9780134077321, 133866297, 133851281, 9780133851298, 134077326, 978-0133866292
