Financial data for Redstone Company for last year appear below Redstone Company

Question

Financial data for Redstone Company for last year appear below Redstone Company Statements of Financial Position Beginning Ending Balance Balance Assets: Cash Accounts receivable Inventory Plant and equipment (net) Investment in Balsam Company Land (undeveloped) $ 295,000 S 336,524 180,000 222,000 441,000 322,000 273,000 178,000 275,000 480,000 306,000 273,000 Total assets $1.807,000 $1,774,524 Liabilities and owners' equity: Accounts payable Long-term debt Owners' equity s 224,000S 197,000 824,000 753,524 824.000 759,000 Total liabilities and owners' equity $1,.807,000 $1.774,524 Redstone Company Income statement Sales Less operating expenses $ 2.480,000 2,033,600 446,400 Net operating income Less interest and taxes: $99,100 Interest expense Tax expense 151,776250,876 Net income $195,524

Explanation / Answer

1) Margin = net operating income/sales Turnover = sales/average operating assets ROI          = margin * turnover Margin 18.0% turnover 2.06 ROI 37.1% total operating assets don't include investments in other companies or in undeveloped land ending Beginning balances balances Cash 336,524 295,000 account receivable 180,000 178,000 inventory 222,000 275,000 plant and equipment,net 441,000 480,000 total Assets 1,179,524 1,228,000 Average operating assets = ( ending balances + beginning balances )/2 (1179524+1228000)/2 1203762 2) Net operating income 446,400 minimum required return 34% residual income 37120.92 Residual income =net operating income - (average operating assets *min required return)

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