Exercise 14-3 Financial Ratios for Asset Management [LO14-3]

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 the 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	$	1,160		$	1,300
Accounts receivable, net		9,900			8,100
Inventory		12,200			11,300
Prepaid expenses		730			570
Total current assets		23,990			21,270
Property and equipment:
Land		10,300			10,300
Buildings and equipment, net		52,718			40,479
Total property and equipment		63,018			50,779
Total assets	$	87,008		$	72,049
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	19,700		$	18,700
Accrued liabilities		950			870
Notes payable, short term		170			170
Total current liabilities		20,820			19,740
Long-term liabilities:
Bonds payable		8,600			8,600
Total liabilities		29,420			28,340
Stockholders' equity:
Common stock		500			500
Additional paid-in capital		4,000			4,000
Total paid-in capital		4,500			4,500
Retained earnings		53,088			39,209
Total stockholders' equity		57,588			43,709
Total liabilities and stockholders' equity	$	87,008		$	72,049

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	81,000		$	65,000
Cost of goods sold		38,775			33,000
Gross margin		42,225			32,000
Selling and administrative expenses:
Selling expenses		11,300			10,400
Administrative expenses		6,600			6,000
Total selling and administrative expenses		17,900			16,400
Net operating income		24,325			15,600
Interest expense		860			860
Net income before taxes		23,465			14,740
Income taxes		9,386			5,896
Net income		14,079			8,844
Dividends to common stockholders		200			375
Net income added to retained earnings		13,879			8,469
Beginning retained earnings		39,209			30,740
Ending retained earnings	$	53,088		$	39,209

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. (