Financial data for Stirling, Inc., for last year are as follows: Stirling, Inc. Balance Sheet Beginning...
| Financial data for Stirling, Inc., for last year are as follows: |
|
Stirling, Inc. Balance Sheet |
||||
|
Beginning Balance |
Ending Balance |
|||
| Assets | ||||
| Cash | $ | 156,000 | $ | 153,000 |
| Accounts receivable | 385,000 | 529,000 | ||
| Inventory | 631,000 | 546,000 | ||
| Plant and equipment, net | 976,000 | 960,000 | ||
| Investment in Brier Company | 456,000 | 480,000 | ||
| Land (undeveloped) | 280,000 | 284,000 | ||
| Total assets | $ | 2,884,000 | $ | 2,952,000 |
| Liabilities and Stockholders' Equity | ||||
| Accounts payable | $ | 432,000 | $ | 390,000 |
| Long-term debt | 1,093,000 | 1,093,000 | ||
| Stockholders' equity | 1,359,000 | 1,469,000 | ||
| Total liabilities and stockholders' equity | $ | 2,884,000 | $ | 2,952,000 |
|
Stirling, Inc. Income Statement |
|||
| Sales | $ | 6,084,000 | |
| Operating expenses | 5,095,520 | ||
| Net operating income | 988,480 | ||
| Interest and taxes: | |||
| Interest expense | $ 181,000 | ||
| Tax expense | 260,000 | 441,000 | |
| Net income | $ | 547,480 | |
| The company paid dividends of $284,480 last year. The "Investment in Brier Company" on the balance sheet represents an investment in the stock of another company. |
| Required: | |
| 1. |
Compute the company’s margin, turnover, and return on investment (ROI) for last year. (Do not round intermediate calculations. Round your Turnover answer to 2 decimal places. Round your Margin and ROI percentage answers to 2 decimal places (i.e., 0.1234 should be entered as 12.34).) |
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| 2. |
The board of directors of Stirling, Inc., has set a minimum required return of 14%. What was the company’s residual income last year? |
Homework Answers
Answer- 1)- Margin – (Net operating income /Sales)*100
= ($988480/$6084000)*100
= 16.25%
Turnover = Sales/ Average operating assets
= $6084000/$2168000
=2.81
Return on investment = Margin*Turnover
= 16.25%*2.81
= 45.66%
Explanation- Calculation of average operating assets = (Opening operating assets+ Closing operating assets)/2
=($156000+$385000+$631000+$976000)+($153000+$529000+$546000+$960000)/2
= ($2148000+$2188000)/2
=$2168000
Operating assets = Cash+ Accounts receivable+ Inventory+ Plant & equipment, net
2)- Residual income for the last year = $684960.
Explanation-
Residual income =Operating income –(Average operating assets*Required rate of return)
= $988480-($2168000*14%)
= $988480-$303520
= $684960
Add Answer to:
Financial data
for Stirling, Inc., for last year are as follows:
Stirling, Inc.
Balance Sheet
Beginning...
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