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	$	1,130		$	1,250
Accounts receivable, net		10,800			8,400
Inventory		13,000			11,800
Prepaid expenses		670			590
Total current assets		25,600			22,040
Property and equipment:
Land		9,400			9,400
Buildings and equipment, net		47,680			35,486
Total property and equipment		57,080			44,886
Total assets	$	82,680		$	66,926
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	19,000		$	19,100
Accrued liabilities		930			760
Notes payable, short term		160			160
Total current liabilities		20,090			20,020
Long-term liabilities:
Bonds payable		9,400			9,400
Total liabilities		29,490			29,420
Stockholders' equity:
Common stock		600			600
Additional paid-in capital		4,000			4,000
Total paid-in capital		4,600			4,600
Retained earnings		48,590			32,906
Total stockholders' equity		53,190			37,506
Total liabilities and stockholders' equity	$	82,680		$	66,926

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	89,280		$	64,000
Cost of goods sold		43,400			42,000
Gross margin		45,880			22,000
Selling and administrative expenses:
Selling expenses		11,200			10,200
Administrative expenses		7,200			6,500
Total selling and administrative expenses		18,400			16,700
Net operating income		27,480			5,300
Interest expense		940			940
Net income before taxes		26,540			4,360
Income taxes		10,616			1,744
Net income		15,924			2,616
Dividends to common stockholders		240			450
Net income added to retained earnings		15,684			2,166
Beginning retained earnings		32,906			30,740
Ending retained earnings	$	48,590		$	32,906

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.)