Question

Financial statements for Askew Industries for 2021 are shown below in thousands 2021 Income Statement Net sales $ 8,700 Cost of goods sold (6,075) Gross profit 2,625 Operating expenses (1,875) Interest expense (110) Income tax expense (256) Net income 384 Comparative Balance Sheets Dec. 31 2021 2020 Assets Cash Accounts receivable Inventory Property, plant, and equipment (net) $ 510 510 710 1,100 $2,830 $ 410 310 510 1,200 $2,430 Liabilities and Shareholders' Equity Current liabilities Bonds payable Common stock Retained earnings $ 560 950 510 810 $2,830 $ 310 950 510 660 $2,430

Answer 1

1)	Inventory Turnover Ratio	$ 9.96
2)	Average days in inventory	36.65	Days
3)	Receivables Turnover ratio	$ 21.22
4)	Average collection period	17.2	Days
5)	Assets turnover ratio	$ 3.31
6)	Profit Margin on sales	4.41%	%
7)	Return on assets	14.60%	%
8)	Return on equity	30.84%	%
9)	Equity Multiplier	$ 2.14	Times
10)	Return on equity (using the Dupont Framework)	30.84%	%

EXPLANATION IS GIVEN BELOW :

Calculate the following ratios for 2021 :(In thousands )
1) Inventory turnover ratio = cost of goods sold / Average inventory
Average inventory = (Beginning Inventory + Ending Inventory)/2
Average inventory = (510 + 710)/2 = $ 610
Cost of goods sold = $ 6,075 ( given)
Inventory turnover ratio = $ 6,075 / $ 610
Inventory turnover ratio = $ 9.96 (rounded to 2 decimal )
2) Average days in inventory = 365 days / Inventory Turnover
Average days in inventory = 365 days / $ 9.96
Average days in inventory = 36.65 Days (rounded to 2 decimal )
3)Receivables Turnover ratio = Net credit sales / Average Accounts receivable
Average Accounts receivable = (Beginning accounts receivable + Ending accounts receivable )/2
Average Accounts receivable = ($ 310 + $ 510 )/2 = $ 410
Net Credit sales = $ 8,700 ( assume all net sales are treated as credit )
Receivables Turnover ratio = $ 8,700 / $ 410
Receivables Turnover ratio = $ 21.22 (rounded to 2 decimal )
4) Average collection period = 365 days / accounts receivable turnover ratio
Average collection period = 365 days / $ 21.22
Average collection period = 17.20 days (rounded to 2 decimal )
5) Asset Turnover ratio = Net Sales / Average Total assets
Average Total assets = (Beginning Total assets + Ending Total assets )/2
Average Total assets = ( $ 2,430   + $ 2,830 )/2 = $ 2,630
Net sales = $ 8,700
Asset Turnover ratio = $ 8,700 / $ 2,630
Asset Turnover ratio = $ 3.31 ( rounded to 2 decimal )
6) Profit Margin on sales = Net Income / Net Sales
Net income = $ 384
Net sales = $ 8,700
Profit Margin on sales = $ 384 / $ 8,700
Profit Margin on sales = 4.41 % (rounded to 2 decimal )
7) Return on assets = Net income / Average Total assets
Average Total assets = (Beginning Total assets + Ending Total assets )/2
Average Total assets = ( $ 2,430   + $ 2,830 )/2 = $ 2,630
Net income = $ 384
Return on assets = $ 384 / $ 2,630
Return on assets = 14.60 % ( rounded to 2 decimal )

8) Return on equity = Net income / Average Total shareholders equity
Average Total shareholders equity = ( Beginning Shareholders equity + Ending Shareholders equity )/2
Here shareholders equity = Common stock + Retained Earnings
Average Total shareholders equity = ( (510+660) + (510 +810) )/2
Average Total shareholders equity = $ 1,245
Net income = $ 384
Return on equity = Net income / Average Total shareholders equity
Return on equity = $ 384 / $ 1,245
Return on equity = 30.84 % ( Rounded to 2 decimal )
9) Equity Multiplier = Total Assets / Total shareholder's equity
Total Assets = $ 2,830
Total shareholder's equity = Common stock + Retained earnings
Total shareholder's equity = $ 510 + $ 810 = $ 1,320
Equity Multiplier = $ 2,830 / $ 1,320
Equity Multiplier = $ 2.14 Times ( rounded to 2 decimal )

10) Return on equity (using the Dupont Framework) = (Net income/ Net Sales )* (Sales / Total Assets )* (Total Assets / Average Shareholder Equity )

Average Total shareholders equity = ( Beginning Shareholders equity + Ending Shareholders equity )/2

Here shareholders equity = Common stock + Retained Earnings

Average Total shareholders equity = ( (510+660) + (510 +810) )/2

Average Total shareholders equity = $ 1,245

Net income = $ 384

Net sales = $ 8,700

Total Assets = $ 2,830

Return on equity (using the Dupont Framework) = (Net income/ Net Sales )* (Net Sales / Total Assets )* (Total Assets / Average Shareholder Equity )

Return on equity (using the Dupont Framework) = ( $ 384/ $ 8,700 )* ( $ 8,700 / $ 2,830 )* ($ 2,830 / $ 1,245 )

Return on equity (using the Dupont Framework) = 30.84 % ( rounded to 2 decimal )