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.
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: 20102009Formulas a)Percent return on net sales b)Percent return on assets employed i)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. 2009Formulas Ratio of Long Term Debt To Equity What 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) 20102009Formulas Ratio #1 Ratio #2 5)What are debt service (coverage) ratios What is the formula to use to determine debt service coverage 6)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 to start 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 for the 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% what might he look for in the numbers and what ratios might he use to check things before alerting management) Income Statement Newton Inc Statement of Income 12/31/1012/31/09 Revenues$ 18,000,000$ 17,650,000 Rental Income-- Total Revenues18,000,00017,650,000 Cost of Revenues10,983,33310,502,000 Gross Profit7,016,6677,148,000 Selling, General and Administrative Expenses3,000,0003,000,000 Income from Operations4,016,6674,148,000 Other Income (Expense): Interest Expense(16,000)(17,000) Interest Income36,00036,000 Gain (Loss) from Foreign Currency Exchange-- Total Other Income (Expense)20,00019,000 Total Income (loss) before Provision for Income Taxes4,036,6674,167,000 Provision for Income Taxes(1,009,167)(1,041,750) Net Income$ 3,027,500$ 3,125,250 Other Comprehensive Income: Foreign Currency Translation Adjustment00 Comprehensive Income3027500.253125250 Bal. Sheet. Retain. Earnings Newton Inc Balance Sheet 12/31/10 12/31/201012/31/2009 Assets Current Assets: Cash and Equivalents$ 1,389,781$ 500,000 Accounts Receivable, Net350,000350,000 Inventory475,000400,000 Prepaid Expenses and Other Current Assets27,50027,500 Total Current Assets2,242,2811,277,500 Property and Equipment, Net1,279,0001,179,000 Other Assets100,000100,000 -- Total Assets$ 3,621,281$ 2,556,500 Liabilities and Stockholders' Equity Current Liabilities:$ 0 Current Maturities of Long-Term Debt$ 686,211$ 485,000 Accrued Other26,84227,842 Accounts Payable350,000250,000 Accrued Expenses27,50027,500 Total Current Liabilities1,090,553790,342 Long-Term Debt, Net of Current Maturities475,000 Accrued Other Long Term45,00045,000 -- Total Liabilities1,135,5541,310,343 -- Shareholders' Equity: Common Stock ( .50 par)885,000885,0001,770,000shares outstanding Retained Earnings1,744,728505,158 -- 2,629,7271,390,157 Less: Treasury Stock144,000144,000 Total Stockholders' Equity2,485,7271,246,157 Total Liabilities and Stockholders' Equity$ 3,621,281$ 2,556,500 - Statement of Retained Earnings for the Year Ended 2009 Beginning Retained Earnings, January 1(2,000,000) Plus Net Income3,125,250 1,125,250 Less Dividends(620,092) Ending Retained Earnings 12/31/09505,158- Statement of Retained Earnings for the Year Ended 2010 Beginning Retained Earnings, January 1505,158 Plus Net Income3,027,500 3,532,658 Less Dividends(1,787,930) Ending Retained Earnings 12/31/101,744,728 IS per Division 2010 Newton Inc Statements of Income Per Division YTD 12/31/10 ShoesClothingAccessoriesTotal Revenues$ 10,500,000$ 5,000,000$ 2,500,000$ 18,000,000 --- Total Revenues10,500,0005,000,0002,500,00018,000,000 Cost of Revenues8,050,0001,933,3331,000,00010,983,333 Gross Profit2,450,0003,066,6671,500,0007,016,667 Selling, General and Administrative Expenses1,000,0001,000,0001,000,0003,000,000 Income from Operations1,450,0002,066,667500,0004,016,667 Other Income (Expense): Interest Expense(16,000)--(16,000) Interest Income12,00012,00012,00036,000 --- Total Other Income (Expense)(4,000)12,00012,00020,000 Income Before Provision for Income Taxes1,446,0002,078,667512,000-4,036,667 Provision for Income Taxes361,500519,667128,000-1,009,167 Income1,084,5001,559,000384,0003,027,500 ---- Net Income$ 1,084,500$ 1,559,000$ 384,000$ 3,027,500 $ 1,084,500$ 1,559,000$ 384,000$ 3,027,500 IS per Division 2009 Newton Inc Statements of Income Per Division YTD 12/31/09 ShoesClothingAccessoriesTotal Revenues$ 9,500,000$ 5,500,000$ 2,650,000$ 17,650,000 --- Total Revenues9,500,0005,500,0002,650,00017,650,000 Cost of Revenues7,280,0002,157,0001,065,00010,502,000 Gross Profit2,220,0003,343,0001,585,0007,148,000 Selling, General and Administrative Expenses1,000,0001,000,0001,000,0003,000,000 Income from Operations1,220,0002,343,000585,0004,148,000 Other Income (Expense): Interest Expense(17,000)--(17,000) Interest Income12,00012,00012,00036,000 --- Total Other Income (Expense)(5,000)12,00012,00019,000 Income Before Provision for Income Taxes1,215,0002,355,000597,000-4,167,000 Provision for Income Taxes303,750588,750149,250-1,041,750 Income911,2501,766,250447,7503,125,250 ---- Net Income$ 911,250$ 1,766,250$ 447,750$ 3,125,250 $ 911,250$ 1,766,250$ 447,750$ 3,125,250 Sheet1