I Need help I Need help 6. Favorite Widget company reported the following over a

Question

I Need help I Need help 6. Favorite Widget company reported the following over a three year period 2008 Sales Net Income 1683 Total Assets 20,036 Inventory 1500 COGS Fixed Assets 4000 2009 $6000 852 10650 960 3500 2500 2010 $3000 288 3692 500 1800 1500 $9000 5500 (a) Compute the firm's profit margin, asset turnover, day's sales in inventory, fixed asset turnover and return on assets for each year. (b) Discuss the company's operating strategy over the 3 year period of time (20pts) 2009 2010 2008 Profit Margin Asset Turnover Days Sales in Inventory Fixed Asset Turnover Return on

Explanation / Answer

a) Profit Margin = Net income / Net sales 2008 2009 2010 Net income 1683 852 288 Net sales 9000 6000 3000 Profit margin 18.7% 14.2% 9.6% b) Assets turnover ratio = Net sales / average total assets Net sales 9000 6000 3000 Beginning total assets 20036 20036 10650 Ending total assets 20036 10650 3692 Average total assets 20036 15343 7171 Assets turnover ratio 0.45 0.39 0.42 c) Fixed Assets turnover ratio = Net sales / average Fixed assets Net sales 9000 6000 3000 Beginning Fixed assets 4000 4000 2500 Ending Fixed assets 4000 2500 1500 Average Fixed assets 4000 3250 2000 Assets turnover ratio 2.25 1.85 1.50 d) Inventory turnover = Cost of goods sold / Average inventory Cost of goods sold 5500 3500 1800 Beginning inventory 1500 1500 960 Ending inventory 1500 960 500 Average inventory 1500 1230 730 Average inventory = (Beginning + Ending )/2 Inventory turnover 3.7 2.8 2.5 Days sale in inventory = 365 / inventory turnover Days sales in inventory 100 128 148 e) Return on assets = net income / total assets Net income 1683 852 288 Total assets 20036 10650 3692 Return on assets 8.4% 8.0% 7.8%

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