Engineering Economics 2013/2014 MISE

Transcription

1 Problem: JS, Inc. shows the following accounting records for 2011: Sales commissions Beginning merchandise inventory Ending merchandise inventory 9000 Sales Advertising Purchases of merchandise Employees salaries Other operating expenses Prepare an income statement for Sales (-) Cost of Goods Sold Beginning Inventory Purchases Cost of Goods Available for Sale Ending Inventory 9000 Cost of Goods Sold Gross Income (-) Selling and Administrative Expenses Sales Commissions Advertising Employees Salaries Other Operating Expenses Operating Income Net Income Página 1 de 6

2 Problem: The balance sheet at December 31 shows the following: Current Assets Cash 4000 Marketable Securities 8000 Accounts Receivable Inventories Prepaid Expenses 1000 Total Current Assets Current Liabilities Notes Payable 5000 Accounts Payable Accrued Expenses Income Taxes Payable 1000 Total Current Liabilities Long-Term Liabilities Determine (a) working capital, (b) current ratio, and (c) quick ratio. 2. Based on the answers to part 1, does this company have good or poor liquidity if the industry averages are a current ratio of 1.29 and a quick ratio of 1.07? Current assets = Current liabilities = Net working capital = current assets current liabilities = current assets current ratio = = = current liabilities cash + marketable securities + receivables quick ratio = = = currente liabilities Página 2 de 6

3 The Current Ratio is better than the industry norm and Quick Ratio is significantly below the norm. As the company has more in Current Liabilities than in highly liquid assets, it has poor liquidity position. Problem: The following account balances existed at December 31, 2011: Balance Sheet ASSETS Current Assets Plant Assets Total Assets LIABILITIES AND STOCKHOLDERS EQUITY Current Liabilities Long-Term Liabilities Total Liabilities Stockholders Equity Total Liabilities and Stockholders Equity Income Statement Data Net Sales Interest Expense 4000 Net Income The tax rate is 35 percent. Industry norms as of December 31, 2011 were: Página 3 de 6

4 Debt-equity ratio 1.75 Profit margin 0.12 Return on total assets 0.15 Return on stockholders equity 0.30 Total asset turnover 1.71 Calculate and evaluate the following ratios for Alpha Company as of December 31, 2011: a) Debt-equity ratio b) Profit margin c) Return on total assets d) Return on stockholders equity e) Total asset turnover a) Total liabilities 175,000 = = 2.33 Stockholder's equity 75,000 Alpha s debt-equity ratio is considerable above the industry norm, indicating a solvency problem. Excessive debt may make it difficult for the firm to meet its obligations during a downturn in business. A high debt position will also make it difficult for the entity to obtain financing during a period of tight money supply. b) Net income 22,500 Profit margin = = = 0.06 Net sales 375,000 Alpha s profit margin is far below the industry norm. This indicate that the operating performance of the entity is poor because the profitability generated from revenue sources is low. Página 4 de 6

5 c) Net income + Interest expense (net of tax) Return on total assets = Average total assets + ( ) ( + ) 22,500 4, ,100 = = , , ,000 Alpha s ratio is below the industry norm. Therefore, the company s efficiency in generating profit from assets is low. Profit generation is, of course, different from revenue (sales) generation because for the former, corporate expenses are deducted from sales. d) Net income Return on stockholder's equity = Average stockholder's equity 22,500 22,500 = = ,000 75, ,000 ( + ) Since the return earned by Alpha s stockholders is slightly more than the industry norm, investment in the firm relative to competition was advantageous to existing stockholders. This may be due to a currently low stockholder s equity investment in the firm. e) Net sales 375,000 = 1.67 Average total assets 225,000 Alpha s ratio is about the same as the industry norm. Therefore, the company s ability to utilize its assets in obtaining revenue is similar to the competition s. The utilization of assets has a bearing upon the ultimate profitability to stockholders. Problem: Consider a company with an asset turnover 2.5. It aims to achieve a return on assets (ROA) of 16%. Which of the following points must be satisfied? a. An asset to equity ratio (alavanca financeira) of b. A debt to equity ratio of 14. Página 5 de 6

6 c. A net profit margin (Net income/sales) of 6.4%. d. An operating profit margin (EBIT/Sales) of 15%. = =2.5 = 0.16 = 2.5 =0.064 Problem: What is the return on assets (ROA) of a company with an accounts receivable of 150,000, a total assets value of 750,000 and a net profit margin of 9%? a. 7.50% b % c. 9.00% d % = 150,000 60/360 =912,500 = = 912, , =10.95 Bibliography EE.MEGI. (2012). Engineering Economics - Lecture Slides and Problems. Lisbon: IST. Sepulveda, J. (1984). Engineering Economics. Schaum: McGraw-Hill. Página 6 de 6