Compute ratio of net income to total assets for each year

Reference no: EM131081360

Assignment

1. Arkansas Homes Inc. shows the following data:

*Year*	*Net Income*	*Total Assets*	*Stockholders' Equity*	*Total Debt*
2011	$180,000	$2,390,000	$ 761,000	$1,629,000
2012	216,000	2,700,000	966,000	1,734,000
2013	243,000	2,730,000	1,770,000	960,000
2014	257,000	2,470,000	2,220,000	250,000

a. Compute the ratio of net income to total assets for each year and comment on the trend (round your percentage answer to two decimal places).

b. Compute the ratio of net income to stockholders' equity and comment on the trend (round your percentage answer to two decimal places). Explain why there may be a difference in the trends between parts a and b.

2. Given the financial statements for Able and Aztech Corporations shown below:

a. Compute all 13 ratios for both companies. Show all calculations.

b. To which company would you, as a Credit Manager for a supplier, approve the extension of credit? Why?

c. In which company would you buy stock? Why?

d. As an industry analyst, what observations would you make for each company?

Able CORPORATION
Current Assets:		Liabilities:
Cash	$35,000	Acct. Payable	$75,000
Marketable Securities	$7,500	Bonds	$210,000
Accounts Receivable	$70,000
Inventory	$75,000
Long - Term Assets:		Stockholders' Equity
Fixed Assets	$500,000	Common Stock	$75,000
Accumulated Depr.	($250,000)	Paid in Capital	$30,000
Net Fixed assets	$250,000	Retained Earnings	$47,500
Total Assets	$437,500	Total S.E & Liabilities	$437,500
Sales	$1,100,000
Cost of Goods Sold	($600,000)
Gross Profit	$500,000
SG&A expenses	($224,000)
Depr. Expense	($50,000)
Operating Profit	$226,000
Interest Expense	($21,000)
Earnings before taxes	$205,000
Tax expense	($52,500)
Net Income	$152,500

Notes:
*Use net fixed assets in computing fixed asset turnover.
*SG&A includes $10,500 in lease payments.

Aztech CORPORATION
Current Assets:		Liabilities:
Cash	$20,000	Acct. Payable	$100,000
Accounts Receivable	$80,000	Bonds	$80,000
Inventory	$50,000
Long - Term Assets:		Stockholders' Equity
Fixed Assets	$500,000	Common Stock	$150,000
Accumulated Depr.	($150,000)	Paid in Capital	$70,000
Net Fixed assets	$350,000	Retained Earnings	$100,000
Total Assets	$500,000	Total S.E & Liabilitie	$500,000
Sales	$1,325,000
Cost of Goods Sold	($750,000)
Gross Profit	$575,000
SG&A expenses	($257,000)
Depr. Expense	($50,000)
Operating Profit	$268,000
Interest Expense	($8,000)
Earnings before taxes	$260,000
Tax expense	($92,500)
Net Income	$167,500

Notes:
*Use net fixed assets in computing fixed asset turnover.
*SG&A includes $23,000 in lease payments.

Reference no: EM131081360

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