Exercise 15-3 Financial Ratios for Asset Management [LO15-3] Comparative financi

Question

Exercise 15-3 Financial Ratios for Asset Management [LO15-3]

Comparative financial statements for Weller Corporation, a merchandising company, for the fiscal year ending December 31 appear below. The company did not issue any new common stock during the year. A total of 800,000 shares of common stock were outstanding. The interest rate on the bond payable was 12%, the income tax rate was 40%, and the dividend per share of common stock was $0.75 last year and $0.40 this year. The market value of the company’s common stock at the end of the year was $18. All of the company’s sales are on account.

Accounts receivable turnover. (Assume that all sales are on account.) (Round your answer to 2 decimal places.)

Average collection period. (Use 365 days in a year. Round your intermediate calculations and final answer to 2 decimal places.)

Inventory turnover. (Round your answer to 2 decimal places.)

Average sale period. (Use 365 days in a year. Round your intermediate calculations and final answer to 2 decimal places.)

Operating cycle. (Round your answer to 2 decimal places.)

Total asset turnover. (Round your answer to 2 decimal places.)

Comparative financial statements for Weller Corporation, a merchandising company, for the fiscal year ending December 31 appear below. The company did not issue any new common stock during the year. A total of 800,000 shares of common stock were outstanding. The interest rate on the bond payable was 12%, the income tax rate was 40%, and the dividend per share of common stock was $0.75 last year and $0.40 this year. The market value of the company’s common stock at the end of the year was $18. All of the company’s sales are on account.

Explanation / Answer

Accounts Receiveble Turnover ratio = Net credit sales / Average accounts Receiveble 79,000/((12,300+9,100)/2) = 7.38 Times Average collection period = 365/Accounts Receiveble turnover ratio 365 / 7.38 = 49.46 Days Inventory turn over ratio = Cost of goods sold / Average inventory 52,000/((9,700+8,200)/2) = 5.81 Times Average sales period = 365 / Inventory Turnover 365 / 5.81 = 62.82 Days Operating cylce = Days inventory outstanding + Days sales outstanding - Days payable outstanding 62.82 + 49.46 + (365 / (52,000/((9,500+8,300)/2) = 174.75 Days Total Assets Turnover ratio = Net Sales / Average total Assets $79,000 / ((50,280+45,960)/2) = 1.64 Times

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