g Use the following information for questions 4-6. The 2016 Income Statement of Illini Company reported net sales of $8 million, cost of goods sold of $4.8 million, and net income of $800,000. The following table shows the company's comparative Balance Sheets for 2016 and 2015: 2016 ($ in 000s) 2015 ($ in 000s) Assets Cash $ 300 $ 380 Accounts receivable 700 500 Inventory 900 700 Property, plant, and equipment (net) 2,400 2,120 Total assets $4,300 $3,700 Liabilities and Shareholders' Equity Current liabilities $ 960 $ 830 Bonds payable 1,200 1,200 Paid-in capital 1,000 1,000 Retained earnings 1,140 670 Total liabilities and shareholders' equity $4,300 $3,700 The industry averages for Illini's line of business are: Inventory turnover: 5 times Average collection period: 25 days Asset turnover: 1.8 times In the following questions, assess Illini's asset management relative to its industry by calculating the key three activity ratios above.

Question

Business

Efrain Avery

20 March, 05:13

g Use the following information for questions 4-6. The 2016 Income Statement of Illini Company reported net sales of $8 million, cost of goods sold of $4.8 million, and net income of $800,000. The following table shows the company's comparative Balance Sheets for 2016 and 2015: 2016 ($ in 000s) 2015 ($ in 000s) Assets Cash $ 300 $ 380 Accounts receivable 700 500 Inventory 900 700 Property, plant, and equipment (net) 2,400 2,120 Total assets $4,300 $3,700 Liabilities and Shareholders' Equity Current liabilities $ 960 $ 830 Bonds payable 1,200 1,200 Paid-in capital 1,000 1,000 Retained earnings 1,140 670 Total liabilities and shareholders' equity $4,300 $3,700 The industry averages for Illini's line of business are: Inventory turnover: 5 times Average collection period: 25 days Asset turnover: 1.8 times In the following questions, assess Illini's asset management relative to its industry by calculating the key three activity ratios above.

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Answers (1)

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Ann Berry · Answer 1

Account receivable turnover ratio = 13.3

ROE = 4.19

Explanation:

Inventory turnover = 5 times

Cost of goods sold = $4.8 million

we know that:

Inventory turnover ratio = Cost of goods sold / Average inventory

5 = 4.5 / Average inventory

Average inventory = 4.5 / 5 = $ 0.9 million.

Account receivable (2016) = 700,000

Account receivable (2015) = 500,000

we know that:

Average account receivable = [ (open) A/c receivables + (end) a/c receivable ] / 2

= (500,000+700,000) / 2

Average account receivable = $ 600,000

we know that: Account receivable turnover ratio = net credit sales / average account receivable.

= 8000000/600000

Account receiable turnover ratio = 13.3.

Asset turnover ratio = 1.8 times

sales = $ 8000000

we know that total asset turnover ratio = total sales / Total asset

1.8 = 8000000/Total assets

Total assets = 8000000/1.8

Total assets = $4,444,444

Return on equity = Net income / Average shareholder equity

Average shareholder equity = [ (open) equity + (end) equity) ] / 2

Paid-up capital + retained earning (2016) = 1000+1140=2140,000

Paid-up capital + retained earning (2015) = 1000+670 = 1670,000

Average shareholder equity = (2140,000+1670,000) / 2

=$1905,000

Return on equity = 8000000/1905000 = 4.19