Simmons has the following balace sheets and income statement. Please calculate t

Question

Simmons has the following balace sheets and income statement. Please calculate the below ratios and indicate if they are better or worse than the industry average.

Simmons Maintenance Company Balance Sheet Assets Liabilities Cash 15,000 Accounts Payable 21,000 Accounts Receivable 22,000 Notes Payable 20,000 Inventory 30,000 Accrued Expenses 5,000     Current Assets 67,000 Current Liabilities 46,000 Net Fixed Assets 73,000 Long Term Debt 30,000 Stockholders Equity 64,000 Total Assets 140,000 Total Liabilities and Equity 140,000 Income Statement Sales 120,000 Cost of Goods Sold 45,000 Gross Profit 75,000 Selling and Admin Expense 20,000 Rent Expense 8,000 EBIT 47,000 Interest Expense 5,000 Earnings Before Taxes 42,000 Taxes 25% 10,500 Net Income 31,500

Explanation / Answer

For Simmons

Calculation of Ratios:

1. Profit Margin = Net Profit / Sales

Profit Margin = 31,500 / 120,000 = 26.25%

Better than Industry.

2. Return on Assets = Net Income / Total Assets

Return on Assets = 31,500 / 140,000 = 22.50%

Better than Industry.

3. Return on equity = Net Income / Stockholder's Equity

Return on Equity = 31,500 / 64,000 = 49.22%

Better than Industry.

4. Receivable Turnover = Credit Sales / Accounts Receivables

Receivable Turnover = 120,000 / 22,000 = 5.45 Times

Equal to Industry.

5. Average Collection Period = 365 / Receivable Turnover Ratio

Average Collection Period = 365 / 5.45 = 67 Days

Better than Industry.

6. Inventory Turnover = Cost of Goods sold / Closing Inventory

Inventory Turnover = 45,000 / 30,000 = 1.5 times

Worse than Industry.

7. Fixed Assets Turnover = Sales / Fixed Assets

Fixed Assets Turnover = 120,000 / 73,000 = 1.64 Times

Worse than Industry.

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