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Finance
Income Statement
Income
$36,000.00
COGS
Gross Income
$36,000.00
Expenses
Rent
$9,600.00
Car
$5,062.00
Food
$4,784.00
Clothing
$1,481.00
Communications
Other Expenses
$1,675.00
Operating Income
$12,438.00
Interest Exp
$1,800.00
Income before taxes
$10,638.00
Income tax
$10,800.00
Net Income
Balance Sheet
Assets
Cash
Car
$14,600.00
Supplies
Total Assets
$15,365.40
Liabilities
Car Loan
$14,600.00
Credit Card
$5,000.00
Total Liabilities
$19,600.00
Equity
-$4,234.60
a) Bauman Company's current and quick ratios for the past four years are as follows:
Item
2009
2010
2011
2012
Current Ratio
Quick Ratio
b) The firm's liquidity during the 2009-2010 period was generally good. Both the current ratio and the quick ratio during this period were relatively high, to the point where a creditor would be comfortable lending this company money in the short run. There was, however, a decline in both ratios over this period. The current ratio slipped slightly, and there was an equally slight slip in the quick ratio. Neither decline was strong, and both were partially reversed the next year. The decline was because the current liabilities grew at a faster rate than the current assets.
c) This information would neither support nor...
Inventory played a less significant role in my evaluation than the current liabilities did; one would reasonably look at both the numerator and denominator for an explanation. Indeed, inventory growth in 2010 was slow compared with the growth in other current assets as well. Bauman's inventory turnover is well below the industry average, but that is not relevant to the firm's liquidity except in context of industry-average liquidity, figures for which we do not have. However, a slight increase in inventory turnover in the 2009-2011 period would, all other factors being equal, reduce the current ratio, because it would reduce the current assets relative to the growth of other factors like current liabilities. This assumes that ordinarily current asset and liabilities classes would grow with sales. So bearing in mind all of the assumptions, the movement in the current ratio is in line with expectations given the change in inventory turnover. That said, the turnover ratio is not particularly consequential. In 2011, for example, the only thing that changed on the balance sheet was other current assets. Perhaps some growth in inventory might have been expected, but that assumption was never explicitly stated.
Part 3. a) The DuPont formula is ROE = profit margin * total asset turnover * equity multiplier (Investopedia, 2013).
So for 2012 at Johnson it is:
.049 * 2.34 * 1.85 = 0.212, or 21.2%
b) The ROE for Johnson and the industry for all three years is:
ROE
2010
2011
2012
Johnson
21.78%
22.12%
21.2%
Industry
18.5%
16.9%
14.4%
Johnson has a higher ROE than the industry in all three years. The first explanation is that Johnson has more leverage. Johnson…
Works Cited:
Investopedia. (2013). Definition of DuPont analysis. Investopedia. Retrieved March 7, 2013 from http://www.investopedia.com/terms/d/dupontanalysis.asp#axzz2MnoRW6v9
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Financial Statements Jaedan Industries Income Statement For the year ending 31 December, 2010 Sales $42,000,000 COGS $26,460,000 Gross Profit $15,540,000 Operating Expenses Selling, General & Administrative $1,621,000 Depreciation $800,000 Earnings Before Interest & Tax $13,119,000 Interest Expense $375,000 Earnings before Taxes $12,744,000 Taxes $4,332,960 Net Income $8,411,040 Dividends Paid $2,102,760 Additions to Retained Earnings $6,308,280 Jaedan Industries Statement of Retained Earnings For the Year Ending December 31, 2010 Balance from 1 Jan 2010 $1,628,819 Addition: Net Income of year $8,411,040 Less: Cash dividends paid during the year Preferred Stock $8,000 Common Stock $2,102,760 Total Dividends Paid $2,110,760 Retained Earnings Balance as at 31 Dec, 2010 $7,929,099 Jaedan Industries Balance Sheet For Year Ended 31 December, 2010 Assets Cash $3,689,000 Marketable Securities $1,836,000 Accounts