# The first sheet includes the assignment questions. The subsequent sheets include the following: Income Statement, Balance Sheet Retained Earnings, Income Statement per Division 2010, and Income...

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The first sheet includes the assignment questions. The subsequent sheets include the following: Income Statement, Balance Sheet Retained Earnings, Income Statement per Division 2010, and Income Statement per Division 2009.
Use the data in the second, third, fourth, and fifth sheets to answer the questions in the first sheet.
QuestionsModule 6Homework AssignmentUse the information given in the green tabs to solve the questions below(answers in yellow, and show formulas used when applicable.)1)Calcluate the following profitablility ratios:20102009Formulasa)Percent return on net salesb)Percent return on assets employedi)What does the percent return on net sales indicate?ii)What does the percent return on assets employed indicate?iii)What does the change from 2009 to 2010 in the percent return on assets mean for the company?2)The CFO wants a projection for 2011 showing a net profit margin of 25%.What changes would have to happen for the net profit to increase?3)What was the long term debt to equity ratio in 2009.2009FormulasRatio of Long Term Debt To EquityWhat does this mean?What is better a higher or lower ratio?4)What are liquidity measures?Choose two ratios that assist in the determination of these measures.(show the answers for both year as well as the formula) - (hint see page 360-361 of text)20102009FormulasRatio #1Ratio #25)What are debt service (coverage) ratiosWhat is the formula to useto determine debt service coverage6)The two purple tabs show the breakdown of each division in this company.What types of items might you decide to "trend" based on the information shown.(ie, if sales in one division declined from one year to the next, what kinds of trends might you want tostart paying attention to. -- hint page 373 and 374)7)Describe at least two things that could happen within this company that would make it necessary forthe controller to dig into the numbers and provide a write up to management.(for instance, the controller might notice that inventory has shrunk by over 50% whatmight he look for in the numbers and what ratios might he use to check things before alerting management)Income StatementNewton IncStatement of Income12/31/1012/31/09Revenues\$ 18,000,000\$ 17,650,000Rental Income--Total Revenues18,000,00017,650,000Cost of Revenues10,983,33310,502,000Gross Profit7,016,6677,148,000Selling, General and Administrative Expenses3,000,0003,000,000Income from Operations4,016,6674,148,000Other Income (Expense):Interest Expense(16,000)(17,000)Interest Income36,00036,000Gain (Loss) from Foreign Currency Exchange--Total Other Income (Expense)20,00019,000Total Income (loss) before Provision for Income Taxes4,036,6674,167,000Provision for Income Taxes(1,009,167)(1,041,750)Net Income\$ 3,027,500\$ 3,125,250Other Comprehensive Income:Foreign Currency Translation Adjustment00Comprehensive Income3027500.253125250Bal. Sheet. Retain. EarningsNewton IncBalance Sheet12/31/1012/31/201012/31/2009AssetsCurrent Assets:Cash and Equivalents\$ 1,389,781\$ 500,000Accounts Receivable, Net350,000350,000Inventory475,000400,000Prepaid Expenses and Other Current Assets27,50027,500Total Current Assets2,242,2811,277,500Property and Equipment, Net1,279,0001,179,000Other Assets100,000100,000--Total Assets\$ 3,621,281\$ 2,556,500Liabilities and Stockholders' EquityCurrent Liabilities:\$ 0Current Maturities of Long-Term Debt\$ 686,211\$ 485,000Accrued Other26,84227,842Accounts Payable350,000250,000Accrued Expenses27,50027,500Total Current Liabilities1,090,553790,342Long-Term Debt, Net of Current Maturities475,000Accrued Other Long Term45,00045,000--Total Liabilities1,135,5541,310,343--Shareholders' Equity:Common Stock ( .50 par)885,000885,0001,770,000shares outstandingRetained Earnings1,744,728505,158--2,629,7271,390,157Less: Treasury Stock144,000144,000Total Stockholders' Equity2,485,7271,246,157Total Liabilities and Stockholders' Equity\$ 3,621,281\$ 2,556,500-Statement of Retained Earningsfor the Year Ended 2009Beginning Retained Earnings, January 1(2,000,000)Plus Net Income3,125,2501,125,250Less Dividends(620,092)Ending Retained Earnings 12/31/09505,158-Statement of Retained Earningsfor the Year Ended 2010Beginning Retained Earnings, January 1505,158Plus Net Income3,027,5003,532,658Less Dividends(1,787,930)Ending Retained Earnings 12/31/101,744,728IS per Division 2010Newton IncStatements of Income Per DivisionYTD 12/31/10ShoesClothingAccessoriesTotalRevenues\$ 10,500,000\$ 5,000,000\$ 2,500,000\$ 18,000,000---Total Revenues10,500,0005,000,0002,500,00018,000,000Cost of Revenues8,050,0001,933,3331,000,00010,983,333Gross Profit2,450,0003,066,6671,500,0007,016,667Selling, General and Administrative Expenses1,000,0001,000,0001,000,0003,000,000Income from Operations1,450,0002,066,667500,0004,016,667Other Income (Expense):Interest Expense(16,000)--(16,000)Interest Income12,00012,00012,00036,000---Total Other Income (Expense)(4,000)12,00012,00020,000Income Before Provision for Income Taxes1,446,0002,078,667512,000-4,036,667Provision for Income Taxes361,500519,667128,000-1,009,167Income1,084,5001,559,000384,0003,027,500----Net Income\$ 1,084,500\$ 1,559,000\$ 384,000\$ 3,027,500\$ 1,084,500\$ 1,559,000\$ 384,000\$ 3,027,500IS per Division 2009Newton IncStatements of Income Per DivisionYTD 12/31/09ShoesClothingAccessoriesTotalRevenues\$ 9,500,000\$ 5,500,000\$ 2,650,000\$ 17,650,000---Total Revenues9,500,0005,500,0002,650,00017,650,000Cost of Revenues7,280,0002,157,0001,065,00010,502,000Gross Profit2,220,0003,343,0001,585,0007,148,000Selling, General and Administrative Expenses1,000,0001,000,0001,000,0003,000,000Income from Operations1,220,0002,343,000585,0004,148,000Other Income (Expense):Interest Expense(17,000)--(17,000)Interest Income12,00012,00012,00036,000---Total Other Income (Expense)(5,000)12,00012,00019,000Income Before Provision for Income Taxes1,215,0002,355,000597,000-4,167,000Provision for Income Taxes303,750588,750149,250-1,041,750Income911,2501,766,250447,7503,125,250----Net Income\$ 911,250\$ 1,766,250\$ 447,750\$ 3,125,250\$ 911,250\$ 1,766,250\$ 447,750\$ 3,125,250Sheet1
Answered 2 days AfterJun 08, 2022

## Answer To: The first sheet includes the assignment questions. The subsequent sheets include the following:...

Sushil Narasagonda answered on Jun 11 2022
Questions
Module 6
Homework Assignment
Use the information given in the green tabs to solve the questions below
(answers in yellow, and show formulas used when applicable.)
1)    Calcluate the following profitablility ratios:
2010        2009        Formulas
a)    Percent return on net sales            17%        18%        Net Income /Total Revenues
b)
Percent return on assets employed            220%        244%        Net Income /Total Fixed Assets
i)    What does the percent return on net sales indicate?                    It indicates that how much % of revenue is converted in to profit. It means how the Company is generating profit from its top line revenue.
ii)    What does the percent return on assets employed indicate?                    It indicates that how the Company efficienty using its assets to generate profits. If this ratio rises it means the company is able to generate good amount of revenue from its assets. If it is going down it means the company will be in some trouble.
iii)    What does the change from 2009 to 2010 in the percent return on assets mean for the company?
ROA is gone down to 220% in 2020 from 244% in 2009. It means that the Company's efficiency to use the assets of the company to generate revenue and profit has decreased and immediate actions are required to co
ect it. The Company or Investors can avoid investing additional funds in Fixed Assets as the return on assets is going down.
2)    The CFO wants a projection for 2011 showing a net profit margin of 25%.
What changes would have to happen for the net profit to increase?
As the Company has good gross margin in Clothing and accessories division, the Company need to increase its volume of sales to achieve the net profit margin of 25%
as the fixed cost is same. To increase the contribution we need to increase sales only. On priority the Company should focus on increasing sales of clothing,
which will increase the net margin substantially.
3)    What was the long term debt to equity ratio in 2009.
2009        Formulas
Ratio of Long Term Debt To Equity            0.42        Total of Long term debt/Total Shareholders Equity
What does this mean?            The debt to equity ratio means debt as a % of shareholders equity. Normally ratio should be below 1. In our case the company is less risky as debt is lower that equity.
What is better a higher or lower ratio?            Lower debt to equity ratio is always better and it is treated that the Company is less risky. It should be less than 1. The debt equity ratio
can be misleading unless it is used along with industry average ratio.
4)    What are liquidity measures?            Liquidity measures are Net working capital, cu
ent ratio, quick ratio and cash ratio.
Choose two ratios that assist in the determination of these measures.
(show the answers for both year as well as the formula) - (hint see page 360-361 of text)
2010        2009        Formulas
Ratio #1    2.06        1.62        Cu
ent ratio = Cu
ent Assets/ Cu
ent Liabilities
Ratio #2    1.60        1.08        Quick Ratio = (Cash + Receivables + Marketable Sucurities) / Cu
ent Liabilities
5)    What are debt service (coverage) ratios            There are various ratios 1. Interest Coverage ratio 2. Debt Service Coverage ratio 3. Asset Coverage ratio
What is the formula to use
to determine debt service coverage            Debt Service coverage = Net Operating Income / (Interest + Principal) OR EBITDA/(Interest + Principal)
6)    The two purple tabs show...
SOLUTION.PDF