Question
Use the following information about CDD Corporation to calculate the following ratios for 2019 (assume an effective tax rate of 35%). State, with reasons, whether
Use the following information about CDD Corporation to calculate the following ratios for 2019 (assume an effective tax rate of 35%).
State, with reasons, whether or not an investor should invest in the company on the terms outlined.
1. | Return on Assets |
2. | Gross profit margin |
3. | Assets Turnover |
4. | Return on Common Shareholders Equity |
5. | Accounts Receivable Turnover |
6. | Inventory Turnover |
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CDD Corporation |
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Balance Sheet |
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As of December 31, | 2019 | 2018 |
Assets: |
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Cash and cash equivalents | $ 712,300 | $ 425,000 |
Accounts Receivable | 408,000 | 106,250 |
Inventory | 510,000 | 612,000 |
Current Assets | 1,630,300 | 1,143,250 |
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Equipment | 714,000 | 654,500 |
Less: Accumulated depreciation | (238,000) | (119,000) |
Land | 425,000 | 170,000 |
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Total assets | $2,531,300 | $1,848,750 |
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Liabilities |
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Accounts Payable | $ 297,500 | $ 382,500 |
Accrued Salaries Payable | 93,500 | 136,000 |
Rent Expense Payable | 37,400 | 17,000 |
Income Tax Payable | 117,300 | 68,000 |
Current Liabilities | 545,700 | 603,500 |
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Long-term note payable | 850,000 | 510,000 |
Total Liabilities | 1,395,700 | 1,113,500 |
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Stockholders Equity: |
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Common stock | 714,000 | 510,000 |
Retained earnings | 421,600 | 225,250 |
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Total liabilities and stockholders equity | $2,531,300 | $1,848,750 |
CDD Corporation |
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Income Statement |
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For the year ended December 31, 2019 |
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Revenues | $2,499,000 |
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Cost of goods sold | (1,428,000) |
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Gross Profit |
| 1,071,000 |
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Operating Expenses |
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Depreciation expense | (112,000) |
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Salary expense | (233,600) |
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Insurance Expense | (40,000) |
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Rent Expense | (160,000) |
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Interest Expense | (67,200) |
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Total Operating Expenses |
| (612,800) |
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Income from Operations |
| 458,200 |
Income Tax Expense |
| (160,370) |
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Net income |
| $ 297,830 |
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