Exercise 16-3 (Algo) Financial Ratios for Asset Management [LO16-3]

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 this year was $21. All of the companys sales are on account.

Weller Corporation Comparative Balance Sheet (dollars in thousands)
	This Year			Last Year
Assets
Current assets:
Cash	$	1,270		$	1,360
Accounts receivable, net		9,700			7,200
Inventory		13,900			12,200
Prepaid expenses		620			540
Total current assets		25,490			21,300
Property and equipment:
Land		10,800			10,800
Buildings and equipment, net		42,708			37,254
Total property and equipment		53,508			48,054
Total assets	$	78,998		$	69,354
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	19,600		$	18,000
Accrued liabilities		900			810
Notes payable, short term		300			300
Total current liabilities		20,800			19,110
Long-term liabilities:
Bonds payable		9,600			9,600
Total liabilities		30,400			28,710
Stockholders' equity:
Common stock		500			500
Additional paid-in capital		4,000			4,000
Total paid-in capital		4,500			4,500
Retained earnings		44,098			36,144
Total stockholders' equity		48,598			40,644
Total liabilities and stockholders' equity	$	78,998		$	69,354

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	79,430		$	65,000
Cost of goods sold		46,980			37,000
Gross margin		32,450			28,000
Selling and administrative expenses:
Selling expenses		10,700			10,900
Administrative expenses		7,200			6,800
Total selling and administrative expenses		17,900			17,700
Net operating income		14,550			10,300
Interest expense		960			960
Net income before taxes		13,590			9,340
Income taxes		5,436			3,736
Net income		8,154			5,604
Dividends to common stockholders		200			500
Net income added to retained earnings		7,954			5,104
Beginning retained earnings		36,144			31,040
Ending retained earnings	$	44,098		$	36,144

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.)

1.	Accounts receivable turnover
2.	Average collection period		days
3.	Inventory turnover
4.	Average sale period		days
5.	Operating cycle		days
6.	Total asset turnover