Question
Problem: Financial Statement Analysis at ABC ABC Company Income Statement For the Year Ending December 31 (USD thousands) 2011 2010 Sales 450,000 380,000 Cost of
Problem: Financial Statement Analysis at ABC
ABC Company Income Statement For the Year Ending December 31 (USD thousands) | ||
| 2011 | 2010 |
Sales | 450,000 | 380,000 |
Cost of sales | 235,000 | 205,000 |
Gross profit | 215,000 | 175,000 |
Operating expenses |
|
|
Management salaries | 105,000 | 85,000 |
Rent | 25,000 | 23,000 |
Depreciation | 10,000 | 8,000 |
Telephone | 1,500 | 700 |
Repairs and maintenance | 6,000 | 5,000 |
Wages and benefits | 26,000 | 20,000 |
Miscellaneous | 2,000 | 1,500 |
Total operating expenses | 175,500 | 143,200 |
Income before interest and taxes | 39,500 | 31,800 |
Interest expense | 25,000 | 20,000 |
Income taxes | 3,000 | 2,500 |
Net income | 11,500 | 9,300 |
ABC Company Balance Sheet As of December 31 (USD thousands) | |||
| 2011 | 2010 |
|
Current assets |
|
|
|
Cash and cash equivalents | 18,000 | 25,000 |
|
Short-term investments | 35,000 | 30,000 |
|
Accounts receivable | 7,000 | 4,000 |
|
Inventory | 90,000 | 80,000 |
|
Prepaid expenses | 2,000 | 1,500 |
|
Total current assets | 152,000 | 140,500 |
|
Fixed assets |
|
|
|
Land | 50,000 | 50,000 |
|
Building | 200,000 | 200,000 |
|
Equipment | 175,000 | 125,000 |
|
Sub-total | 425,000 | 375,000 |
|
Less: accumulative depreciation | (102,000) | (92,000) |
|
Total fixed assets | 323,000 | 283,000 |
|
Total assets | 475,000 | 423,500 |
|
Current liabilities |
|
|
|
Accounts payable | 60,000 | 50,000 |
|
Operating line of credit | 15,000 | 10,000 |
|
Current portion of long-term debt | 10,000 | 10,000 |
|
Total current liabilities | 85,000 | 70,000 |
|
Long-term liabilities |
|
|
|
Bond payable | 190,000 | 165,000 |
|
Shareholders equity |
|
|
|
Preferred shares | 5,000 | 5,000 |
|
Common shares | 15,000 | 10,000 |
|
Retained earnings | 180,000 | 173,500 |
|
Total shareholders equity | 200,000 | 188,500 |
|
Total liabilities and shareholders equity | 475,000 | 423,500 |
|
Other information
Approximately 15.0% of ABCs sales are on credit at terms net 30. All inventory purchases are on credit at terms net 60.
The market value of ABCs common share is USD 22.00 and it has 10,000 common shares and 5,000 preferred shares outstanding. The preferred shares pay a USD 0.10 annual dividend. The common share dividend in 2011 was USD 0.45. The tax rate is 21.0%.
Required:
- Calculate the following ratios:
Accounts receivable turnover in days
Operating cycle
Accounts payable turnover
Accounts payable turnover in days
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