Some recent financial statements for Smolira Golf, Inc., follow. SMOLIRA GOLF, I

Question

Some recent financial statements for Smolira Golf, Inc., follow.

SMOLIRA GOLF, INC.
Balance Sheets as of December 31, 2009 and 2010
2009 2010 2009 2010
Assets Liabilities and Owners’ Equity
Current assets Current liabilities
Cash $ 2,881 $ 2,757 Accounts payable $ 2,208 $ 2,710
Accounts receivable 4,712 5,671 Notes payable 1,805 2,226
Inventory 12,698 13,672 Other 101 118

Total $ 20,291 $ 22,100 Total $ 4,114 $ 5,054

Long-term debt $ 14,400 $ 17,160
Owners’ equity
Common stock
and paid-in surplus $ 43,500 $ 43,500
Fixed assets Accumulated retained earnings 15,709 39,915

Net plant and equipment 57,432 83,529 Total $ 59,209 $ 83,415

Total assets $ 77,723 $ 105,629 Total liabilities and owners’ equity $ 77,723 $ 105,629


SMOLIRA GOLF, INC.
2010 Income Statement
Sales $ 189,570
Cost of goods sold 127,303
Depreciation 5,223

EBIT $ 57,044
Interest paid 1,320

Taxable income $ 55,724
Taxes 19,503

Net income $ 36,221

Dividends $ 12,015
Retained earnings 24,206

Find the following financial ratios for Smolira Golf (use year-end figures rather than average values where appropriate): (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16). Enter the profitability ratios as percents.)

Short-term solvency ratios 2009 2010      a. Current ratio ___times ____times      b. Quick ratio ___times ____times      c. Cash ratio ___times ____times   Asset utilization ratios      d. Total asset turnover ____times      e. Inventory turnover ____times      f. Receivables turnover _____times   Long-term solvency ratios      g. Total debt ratio ___times ______times      h. Debt-equity ratio ___imes ______times      i. Equity multiplier ___times ______ times      j. Times interest earned ratio ______times      k. Cash coverage ratio ______imes   Profitability ratios      l. Profit margin ______%      m. Return on assets ______%      n. Return on equity

Explanation / Answer

Ans;

Profit Margin = [Net Income / Sales]
Net Income = $36,221
Sales = $189,570

Profit Margin = [$36,221 / $189,570]
Profit Margin = 19.11%

Total Asset Turnover = [Sales / Total Assets]
Total Assets = $105,629
Total Assets Turnover = [$189,570 / $105,629]
Total Asset Turnover = 1.79 times

Equity Multiplier = [Total Assets / Total Equity]
Total Equity = [Common Stock + Accumulated Retained Earnings]
Total Equity = [$43,500 + $39,915]

Total Equity = $83,415

Equity Multiplier = [$105,629 / $83,415]
Equity Multiplier = 1.26


Du Pont Identity:

ROE = Profit Margin * Total Asset Turnover * Equity Multiplier
ROE = 19.11% * 1.79 * 1.26
ROE = 0.1911 * 1.79 * 1.26
ROE = 0.4342 (or) 43.42%

Return on Equity = [Net Income / Total Stock holder’s Equity]
Net Income = $36,221
Total Stockholder’s Equity = $83,415

Return on Equity = [$36,221 / $83,415]
Return on Equity = 0.4342 (or) 43.42

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