Refer to the information for Adrian Express in E125. Industry averages for the following profitability ratios are

Question:

Refer to the information for Adrian Express in E12–5. Industry averages for the following profitability ratios are as follows:

Gross profit ratio ............................ 45%
Return on assets ............................ 25%
Profit margin ................................... 15%
Asset turnover ................................ 2.5 times
Return on equity ........................... 35%


Required:

1. Calculate the five profitability ratios listed above for Adrian Express.

2. Do you think the company is more profitable or less profitable than the industry average? Explain your answer.


E12–5

The 2021 income statement of Adrian Express reports sales of $19,310,000, cost of goods sold of $12,250,000, and net income of $1,700,000. Balance sheet information is provided in the following table.

ADRIAN EXPRESS Balance Sheets December 31, 2021 and 2020 2021 2020 Assets Current assets: $ 700,000 1,600,000 Cash $ 860,000 Accounts receivable 1,100,000 Inventory 2,000,000 1,500,000 4,340,000 $7,800,000 Long-term assets 4,900,000 $9,200,000 Total assets Liabilities and Stockholders' Equity $1,920,000 2,400,000 Current liabilities $1,760,000 Long-term liabilities Common stock 2,500,000 1,900,000 1,900,000


Industry averages for the following four risk ratios are as follows:

Average collection period ................ 25 days
Average days in inventory ............... 60 days
Current ratio ........................................... 2 to 1
Debt to equity ratio ............................ 50%

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...
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Financial Accounting

ISBN: 978-1259914898

5th edition

Authors: David Spiceland, Wayne M. Thomas, Don Herrmann

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