The Haines Corporation shows the following financial data for 20X1 and 20X2:

	20X1	20X2
Sales	$ 3,480,000	$ 3,140,000
Cost of goods sold	2,530,000	2,260,000
Gross profit	$ 950,000	$ 880,000
Selling & administrative expense	255,000	261,000
Operating profit	$ 695,000	$ 619,000
Interest expense	44,800	49,700
Income before taxes	$ 650,200	$ 569,300
Taxes (35%)	227,570	199,255
Income after taxes	$ 422,630	$ 370,045

For each year, compute the following ratios and indicate how the change in each ratio will affect profitability in 20X2.

	20X1		20X2		Profitability
a. Cost of goods sold to sales		%		%
b. Selling and administrative expense to sales		%		%
c. Interest expense to sales		%		%

2. A firm has a debt-to-total assets ratio of 75%, $219,000 in debt, and net income of $41,610. Calculate return on equity.

3. Database Systems is considering expansion into a new product line. Assets to support expansion will cost $990,000. It is estimated that Database can generate $1,990,000 in annual sales, with an 9 percent profit margin.

What would net income and return on assets (investment) be for the year?

4, Polly Esther Dress Shops Incorporated can open a new store that will do an annual sales volume of $1,372,800. It will turn over its assets 3.2 times per year. The profit margin on sales will be 13 percent.

What would net income and return on assets (investment) be for the year?

5. A firm's long-term assets = $40,000, total assets = $260,000, inventory = $19,000 and current liabilities = $10,000. What are the firm’s current ratio and quick ratio?

6. ABC Company has an average collection period of 50 days for its accounts receivable. If total credit sales for the year were $3,200,000, what is the balance in accounts receivable at year-end? Assume a 360-day calendar year.

7. The Bubba Corporation had earnings before taxes of $193,000 and sales of $1,930,000. If it is in the 53% tax bracket, its after-tax profit margin is:

8. Low Carb Diet Supplement Incorporated has two divisions. Division A has a profit of $176,000 on sales of $2,490,000. Division B is able to make only $25,800 on sales of $451,000.

1. Compute the profit margins (return on sales) for each division.

   Based on the profit margins (returns on sales), which division is superior?
   
   9. A firm has total assets of $2,050,000 and stockholders equity is $627,000. What is the debt to total assets ratio?

10. Network Communications has total assets of $2,300,000 and current assets of $655,000. It turns over its fixed assets four times a year. It has $384,000 of debt. Its return on sales is 4 percent.

What is its return on stockholders’ equity?

Answer rating: 100% (QA)

Lets calculate the ratios and answer the questions one by one Profitability Ratios a Cost of goods sold to sales Cost of Goods Sold COGS to Sales COGS ... View the full answer