Use the information in the table below to answer the following questions Windswe

Question

Use the information in the table below to answer the following questions Windswept Woodworks, Inc. Input Data (millions of dollars) Year 2 Year 1 436 1,280 6,748 224 1,184 1,500 384 830 6.632 128 1.120 payable Accounts receivable Accumulated depreciation Cash & equivalents Common stock Cost of goods sold Depreciation expense Common stock dividends paid Interest expense n.a n.a n.a 1,028 140 1.014 602 812 230 10,260 3.062 3.018 116 Addition to retained earnings Long-term debt 736 380 10,000 2.476 s payable Gross plant & equipme Retained earnings Sales Other current liabilities Tax rate Market price per share - year end Number of shares outstanding nt 96 34% 5 19.80 5 17.50 500 million 500 million Net profit = 834.24 a. Calculate Windswept Woodworks' return on equity for year 2. (Round your answer to 2 decimal places.) ROE Calculate the following items for Windswept Woodworks for year 2. Round your answers to 2 decimal places.) b. Profit margin c. Tax burden ratio d. Interest burden ratio e. Asset turnover ratio f. Leverage ratio

Explanation / Answer

a. Stockholder's equity Year 1 = Common stock + Retained earnings

= $1120 + $2476 = $3596

Stockholder's equity Year 2 = Common stock + Retained earnings

= $1184 + $3062 = $4246

Average stockholder's equity = (3596 + 4246)/2 = $3921

ROE = Net profit/ Average stockholder's equity

= $834.24/ 3921

= 21.28%

b. Profit margin = Net profit/ Sales

= $834.24/ 3018

= 27.64%

c. Tax burden ratio = Net profit/ Pre-tax profit

Pretax profit = $834.24/ (100% - 34%) = $1264

Tax burden ratio = $834.24/ 1264

= 0.66

d. Interest burden ratio = EBIT/ Interest expense

= ($1264 + $140)/ $140

= 10.03

e. Asset tunrover ratio = Sales/ Average total assets

Total assets = Accounts receivable + Cash and equivalents + Inventory + Gross plant and equipment - Accumulated depreciation

Year 1 = $830 + 128 + 1026 + 10000 - 6632 = $5352

Year 2 = $1280 + 224 + 1014 + 10260 - 6746 = $6032

Average total assets = (5352 + 6032)/2 = $5692

Asset tunrover ratio = Sales/ Average total assets

= $3018/ 5692

= 0.53

f. Leverage ratio = Average total assets/ Average stockholder's equity

= $5692/ $3921

= 1.45

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