THE CRIMSON PRESS CURRICULUM CENTER THE CRIMSON GROUP, INC. Amerbrand Company (B) Using the 2004 financial statements in Amerbrand Company (A) together with the 2003 income statement shown in Exhibit 1 in the (A) case, calculate the ratios listed below for 2003 and 2004. Use year-end amounts for ratios that involve balance sheet data. The company's interest expense in 2003 and 2004 respectively was in thou- sands) $105,165 and $102,791 respectively. 1. Return on assets 2. Return on equity 3. Gross margin percentage 4. Return on sales 5. Asset turnover 6. Days' cash 7. Days' receivables 8. Days' inventories 9. Inventory turnover 10. Current ratio 11. Acid-test ratio 12. Debt-capitalization ratio 13. Times interest earned Assignment 1. Comment on Amerbrand's treatment of excise taxes as part of the calculation of gross margin. 2. As an outside analyst, what questions would you want to ask Amerbrand's management based on the ratios you have calcu lated? AMERBRAND COMPANY (B) Exhibit 1. Income Statement For the Year Ended December 31, 2003 (in thousands) $6,577,480 2,573,350 2.354.350 Sales revenue, net Less: Cost of sales Excise taxes on goods sold Gross margin Selling, general, and administrative expenses Income before income taxes Provision for income taxes Net income 1.649,780 974.121 675,659 296,877 $378,782 AMERBRAND COMPANY (A) Exhibit 1. Balance Sheets as of December 31 (in thousands) 2004 2003 $ $ Assets Cash Accounts receivable Inventories Prepaid expenses Total current assets Investments Property, plant, and equipment, at cost Less accumulated depreciation Net property, plant, and equipment Goodwill Other assets Total assets 28,912 756.152 1.244,912 76,140 2,106,116 1,116,534 1,566,268 723,442 842,826 645,210 115,826 4,826,512 23,952 687,325 1,225,402 77,167 2,013,846 1,058,637 1,366,719 645,734 720,985 577.606 62,374 4,433,448 Liabilities and Shareholders' Equity Accounts payable Short-term debt Accrued expenses payable Total current liabilities Long-term liabilities Total liabilities Convertible preferred stock Common stock, at par Additional paid-in capital Treasury stock, at cost Retained earnings Total shareholders' equity Total liabilities and shareholders' equity 271,452 430,776 922,990 1.625,218 880,674 2,505,892 33,828 322,834 53,641 (110,948) 2.021.265 2,320,620 $ 4.826,512 238,377 351,112 728,262 1,317,751 932,828 2.250,579 42,611 161,417 57,072 (102,705) 2.024.474 2,182,869 $4,433,448 Income Statement For the year ended December 31, 2004 (in thousands) Sales revenues, net Cost of sales Excise taxes on goods sold Gross margin Selling, general, and administrative expenses Income before income taxes Provision for income taxes Net income $ 7,622,677 2.803,623 2,887,616 1,931,438 1,328,107 603,331 274,558 $ 328,773