The financial statements and industry norms are shown below for Pamplin, Inc. Gi

Question

The financial statements and industry norms are shown below for Pamplin, Inc.

Given the below:

a. How liquid is the firm?

b. Are its managers generating an adequate operating profit on the firm%u2019s assets?

c. How is the firm financing its assets?

d. Are its managers generating a good return on equity?

2012              2013

Current ratio                 6                 4

Times interest earned         5                 5.625

Inventory turnover            1.27             1.36

Total asset turnover          .5                .55

Operating profit margin       .20               .24

Operating return on assets    .10               .13

Debt ratio              .33             .34

Average collection period          

         $450 / $1020 = .44      $425 / $1232.5 = .34

         $450/ ($1020/365) $425 / ($1232.5/365)

         $450/2.79 = 161.29      $425/3.37 = 126.11

Fixed-asset turnover          1                1.03

Return on Equity        .075            .104

Explanation / Answer

A)

Ans)

Current Ratio = Current Assets/ Current libilities

Acid Test Ratio= Current Assets - inventores/ Current libilities

Average Collection Period= Account receiveble/Anuval credit sales/365 days

Account receivable turnver= credit sales/account receivable

inventory turnover ratio= cost of good sold/ inventory

B)

Ans)

If we want to know if the profits are sufficient relative to the assets being invested, it is recommended to compare our question to the free-risk interest rate that we can we earn on a savings account or long-term deposit at the bank or Treasury bill at central bank.

Gross Profit Margin

Gross Profit Margin = (Revenue %u2013 Operating Cost) / Revenue * 100

Operating Profit Ratio = EBIT/Revenue

Net Profit Margin Ratio = Net income/Revenue

Return on Investments

(ROIReturn on Assets (ROA)

ROA = Net income/Average total assets *100

ROA = Profit Margin * Assets turnover

Return on Capital Employed (ROCE)

ROCE = Net income/Average capital employed *100

Return on ordinary Shareholder%u2019s Equity (ROE)

ROE = (Net income-Preference dividend)/Average Ordinary Shareholder%u2019s Equity *100

ROE = Leverage ratio * Assets turnover x profit margin x debt burden

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.