Financial data for Joel de Paris, Inc., for last year follow: Joel de Paris, Inc

Question

Financial data for Joel de Paris, Inc., for last year follow: Joel de Paris, Inc. Balance Sheet Beginning Balance Ending Balance Assets Cash Accounts receivable Inventory Plant and equipment, net Investment in Buisso Land (undeveloped) Total assets $125,000 135,000 480,000 490,000 835,000 428,000 254,000 $2,554,000 2,622,000 346,000 577,000 852,000 400,000 254,0002 n, S.A Liabilities and Stockholders' Equity Accounts payable Long-term debt Stockholders' equity $384,000 343,000 1,038,000 1,132,000 1,241,000 $2,554,000 2,622,000 1,038,000 Total liabilities and stockholders equity Joel de Paris, Inc. Income Statement Sales Operating expenses Net operating income Interest and taxes: $4,800,000 4.176,000 624,000 119,000 195,000314,000 Interest expense Tax expense Net income $310,000

Explanation / Answer

1) company’s average operating assets for last year

      

Ending balance

Beginning balance

cash

$135,000

$125,000

Accounts receivables

$480,000

$346,000

Inventory

$490,000

$577,000

Plant and equipment

$835,000

$852,000

Total operating assets

$1,940,000

$1,900,000

Average operating Assets = 1,940,000+1,900,000/2

                                           = $1,920,000

            Company’s Average operating assets = $1,920,000

2) company’s margin , turnover , and return on investment (ROI)

    

                Margin :

            Margin = net operating income/sales

                         = $624,000/$4,800,000

                         = 13%

            Company’s margin = 13%

          Turnover :

          Turnover = sales/average operating assets

                            = $4,800,000/$1,920,000

                           = 2.5

           Company’s turnover = 2.5

        Return on investment (ROI)

             ROI = margin * turnover

                     = 13%*2.5

                     = 32.5%

Company’s return on investment (ROI) = 32.5%

3) company’s residual income

              Net operating income                                        = $624,000

          Minimum required return (15%*1,920,000)         = $288,000

                    Residual income(624,000-288,000)            = $336,000

company’s residual income = $336,000

Ending balance

Beginning balance

cash

$135,000

$125,000

Accounts receivables

$480,000

$346,000

Inventory

$490,000

$577,000

Plant and equipment

$835,000

$852,000

Total operating assets

$1,940,000

$1,900,000

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