Financial data for Joel de Paris,Inc, forlast year followr Joel de Paris, Inc Ba

Question

Financial data for Joel de Paris,Inc, forlast year followr Joel de Paris, Inc Balance Sheet Beginning Balance Ending Balanc Assets Cash Accounts receivable Inventory Plant and equipment, net Investment in Buisson, s.A. Land (undeveloped) Total assets 140,000 120,000 530,000 380,000 620,000 280,000 170,000 2,020,000 2,100,000 450,000 320,000 680,000 250,000 180,000 1 Liabilities and Stockholders' Equity Accounts payable Long-term debt Stockholders' equity Total liabilities and stockholders' equity 360,000310,000 1,500,000 1,500,000 160,000290,000 $2,020,000 2,100,000

Explanation / Answer

1) The operating assets do not include investments in other companies or in undeveloped land.

  Calculation of Average Operating Assets (Amounts in $)

Average Operating Assets = ($1,650,000+$1,590,000)/2 = $1,620,000

2) Margin = Net Operating Income/Sales

= $405,000/$4,050,000 = 0.10 or 10%

Turnover = Sales/Average Operating Assets

= $4,050,000/$1,620,000 = 2.5

ROI = Margin*Turnover = 10%*2.5 = 25%

3) Minimum required return = Average Operating Assets*Rate of return

= $1,620,000*15% = $243,000

Residual Income = Net Operating Income - Minimum required return

= $405,000 - $243,000 = $162,000

Operating Assets Ending Balances Beginning Balances Cash 120,000 140,000 Accounts Receivable 530,000 450,000 Inventory 380,000 320,000 Plant and Equipment, net 620,000 680,000 Total Operating Assets 1,650,000 1,590,000

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