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 600,000 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	$	1,240		$	1,290
Accounts receivable, net		9,800			7,100
Inventory		12,600			11,700
Prepaid expenses		660			600
Total current assets		24,300			20,690
Property and equipment:
Land		10,700			10,700
Buildings and equipment, net		44,554			40,054
Total property and equipment		55,254			50,754
Total assets	$	79,554		$	71,444
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	18,800		$	17,900
Accrued liabilities		1,060			810
Notes payable, short term		290			290
Total current liabilities		20,150			19,000
Long-term liabilities:
Bonds payable		9,600			9,600
Total liabilities		29,750			28,600
Stockholders' equity:
Common stock		600			600
Additional paid-in capital		4,000			4,000
Total paid-in capital		4,600			4,600
Retained earnings		45,204			38,244
Total stockholders' equity		49,804			42,844
Total liabilities and stockholders' equity	$	79,554		$	71,444

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	72,670		$	66,000
Cost of goods sold		41,310			35,000
Gross margin		31,360			31,000
Selling and administrative expenses:
Selling expenses		11,400			10,300
Administrative expenses		7,000			6,900
Total selling and administrative expenses		18,400			17,200
Net operating income		12,960			13,800
Interest expense		960			960
Net income before taxes		12,000			12,840
Income taxes		4,800			5,136
Net income		7,200			7,704
Dividends to common stockholders		240			300
Net income added to retained earnings		6,960			7,404
Beginning retained earnings		38,244			30,840
Ending retained earnings	$	45,204		$	38,244

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.)