Question

USE THE DATA IN THE TABLE BELOW TO ANSWER QUESTIONS 19 – 24

(Assume all account figures are in dollars)

Lemark Productions	2015	2016
Accounts payable	360	390
Accounts receivable, net	1,680	1,510
Accruals	165	190
Cash	165	160
Common stock	1,660	1,380
Cost of goods sold	4,100	4,850
Depreciation expenses	400	560
Interest expenses	290	300
Inventory	4,375	4,050
Long-term debt	4,500	4,150
Net fixed assets	6,940	7,090
Net sales	7,950	8,980
Notes payable	600	740
Operating expenses (excl. depreciatio2n,)130		2,180
Retained earnings	5,875	5,960
Taxes	390	410

What is ROE for 2016 is _____% and cash flow from financing activities in 2016 is $ _________?

Answer 1

ROE = 9.26%

Net cash flow from financing activities = -630

For calculating return on equity we first need to calculate net income

Net Sales= 8980

Less: Cost of goods sold = 4850

Gross profit = 4130

Less:

Depreciation expenses = 560

Operating expenses = 2180

Interest expenses = 300

Profit before tax = 1090

Less taxes = 410

Net income= 680

Return on equity = net income/ (common stock+ retained earnings)

= 680/ (1380+5960)

= 9.26%

Cash flow from financing activities

Decrease in common stock = -280

(1380-1660)

Decrease in long term debt = -350

(4150-4500)

Net cash flow from financing activities = -630