Ratios Compared with Industry Averages You are analyzing the performance of Lumi

Question

Ratios Compared with Industry Averages You are analyzing the performance of Lumite Corporation, a manufacturer of personal care products, for the most recent year. The following data are taken from the firm's latest annual report: Quick assets Inventory and prepaid expenses Other assets Total Assets Dec. 31, 2016 Dec. 31, 2015 385,000$350,000 950,000820,000 4,165,0003,700,000 $5,500,000 $4,870,000 Current liabilities $600,000$500,000 1,300,0001,300,000 900,000900,000 1,900,0001,800,000 370,000 $5,500,000 $4,870,000 1096 Bonds payable 7% Preferred stock Common stock, $5 par value 800,000 Retained earnings Total Liabilities and Stockholders' EquityS In 2016, net sales amount to $8,800,000, net income is $680,000, and preferred stock dividends paid are $65,000 Required Calculate the following ratios for 2016. Round answers to two decimal places. 1. Return on sales

Explanation / Answer

Solution:

1. Return on Sales = Net Income / Net Sales = $680,000 / $8,800,000 = 7.73%

2. Return on Assets = Net Income / Average Assets = $680,000 / [($5,500,000 + $4,870,000)/2] = 13.11%

3. Return on common stockholder's equity = (Net Income - Preferred dividend) / Average common stockholder equity

Average common stock holder equity = ($2,700,000 + $2,170,000)/2 = $2,435,000

Return on common stockholder's equity = ($680,000 - $65,000) / $2,435,000 = 25.26%

4. Quick ratio = Quick Assets / Current liabilities = $385,000 / $600,000 = 0.64:1

5. Current ratio = Current Assets / Current Laibilities = ($385,000 + $950,000) / $600,000 = 2.23:1

6. Debt to Equity Ratio = Total liabilities / Shareholder's Equity

= ($600,000 + $1,300,000) / ($900,000 + $1,900,000 + $800,000) = 0.53:1

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