Selected data from the financial statements of Italian Marble Co. and Brazil Sto

Question

Selected data from the financial statements of Italian Marble Co. and Brazil Stone Products for the year just ended follow. Assume that for both companies, dividends declared were equal in amount to net earnings during the year, and therefore stockholders' equity did not change. The two companies are in the same line of business.

  

a. Compute the net income for each company.

b. Compute the net income as a percentage of stockholders' equity for each company.

c. Compute the accounts receivable turnover for each company.

d. Compute the inventory turnover for each company.

e. Which company is in a stronger financial position?

Compute the net income for each company.

Compute the net income as a percentage of stockholders' equity for each company. (Round your answers to the nearest whole number.)

Compute the accounts receivable turnover for each company. (Round your answers to the nearest whole number.)

Compute the inventory turnover for each company. (Round your answers to 1 decimal place.)

Italian Marble Co. Brazil Stone Products Total liabilities $ 200,000 $ 100,000 Total assets 800,000 400,000 Sales (all on credit) 1,850,000 1,060,000 Average inventory 240,000 140,000 Average receivables 200,000 100,000 Gross profit as a percentage of sales 40 % 30 % Operating expenses as a percentage of sales 36 % 25 % Net income as a percentage of sales 3 % 5 %

Explanation / Answer

Solution:

e. Net profit percentage, return on stock holder equity, accounts receivable turnover ratio and inventory turnover ratio of Brazil stone product is much better than Italian marble company. Hence Brazil stone product is in a stronger financial position.

S. No. Particulars Italian Marble Co Brazil Stone Products a Sales $1,850,000.00 $1,060,000.00 Net Income as percentage of Sales 3% 5% Net Income(Sales * NI Percentage) $55,500.00 $53,000.00 b Net Income $55,500.00 $53,000.00 Total Assets $800,000.00 $400,000.00 Total Liabilities $200,000.00 $100,000.00 Stock holders equity (Assets - Liabilities) $600,000.00 $300,000.00 Net Income as percentage of stock holder's equity (Net Income / Stockholder equity*100) 9% 18% c Sales $1,850,000.00 $1,060,000.00 Average Receivables $200,000.00 $100,000.00 Accounts Receivable Turnover (Sales / Average Receivables) 9.25 Times 10.60 Times d Sales $1,850,000.00 $1,060,000.00 Gross Profit as a percentage of Sales 40% 30% Gross Profit $740,000.00 $318,000.00 Cost of goods Sold (Sales - Gross Profit) $1,110,000.00 $742,000.00 Average Inventory $240,000.00 $140,000.00 Inventory Turnover Ratio (COGS / Average Inventory) 4.625 Times 5.30 Times

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