Crafting and Executing Strategy
Crafting and Executing Strategy
22nd Edition
ISBN: 9781260157475
Author: Thompson
Publisher: MCG
Question
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Chapter 4, Problem 1ALE

a)

Summary Introduction

To determine: Gross profit margin from the given financial information.

a)

Expert Solution
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Explanation of Solution

Calculation of gross profit:

Grossprofitmarginin 2017=SalescostofgoodssoldSales×100=$3,445,134$2,243,232$3,445,134×100=34.89%

Gross profit margin in 2017 is 34.89%

Grossprofitmarginin 2016=SalescostofgoodssoldSales×100=$3,545,794$2,301,181$3,545,794×100=35.10%

Gross profit margin in 2016 is 35.10 %

b)

Summary Introduction

To determine: Operating profit margin.

b)

Expert Solution
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Explanation of Solution

Calculation of operating profit margin:

Operating profitmarginin 2017=OperatingincomeSales×100=$338,527$3,545,794×100=9.55%

Operating profit margin in 2017 is 9.55 %

Operating profitmarginin 2016=OperatingincomeSales×100=$353,579$3,445,134×100=10.26%

Gross profit margin in 2016 is 10.26 %

c)

Summary Introduction

To determine: Net profit margin.

c)

Expert Solution
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Explanation of Solution

Calculation of net profit margin:

Net profitmarginin 2017=ProfitsaftertaxesSales×100=$218,120$3,545,794×100=6.15%

Net profit margin in 2017 is 6.15 %

Net profitmarginin 2016=Profitafter taxesSales×100=$224,489$3,445,134×100=6.52%

Gross profit margin in 2016 is 6.52 %

d)

Summary Introduction

To determine: Times interest earned ratio.

d)

Expert Solution
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Explanation of Solution

Calculation of times interest earned ratio:

Times interest earned ratio=OperatingincomeInterest expense

Company has no times interest earned ration because it doesn’t have interest expense.

e)

Summary Introduction

To determine: Return on shareholders’ equity.

e)

Expert Solution
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Explanation of Solution

Calculation of return on shareholders’ equity:

Return on shareholders' equity in 2017=ProfitaftertaxesTotal  stockholders' equity=$218,120$1,313,084×100=16.61%

Return on shareholders’ equity in 2017 is 16.61 %

Return on shareholders' equity in 2016=ProfitaftertaxesTotal  stockholders' equity=$224,489$1,137,227×100=19.74%

Return on shareholders’ equity in 2016 is 19.74 %

f)

Summary Introduction

To determine: Return on assets.

f)

Expert Solution
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Explanation of Solution

Calculation of return on assets:

Return on assets in 2017=ProfitaftertaxesTotal assets=$218,120$1,902,673×100=11.46%

Return on assets in 2017 is 11.46 %

Return on assets in 2016=ProfitaftertaxesTotal  assets=$224,489$1,833,301×100=12.25%

Return on assets in 2016 is 12.25 %

g)

Summary Introduction

To determine: Debt-to equity ratio.

g)

Expert Solution
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Explanation of Solution

Calculation of debt-to-equity ratio:

Debt-to-equity ratio in 2017=Total debtTotal stockholders' equity=$589,553$1,313,084=0.45

Debt-to-equity ratio in 2017 is 0.45

Debt-to-equity ratio in 2016=Total debtTotal stockholders' equity=$696,074$1,137,227=0.61

Debt-to-equity ratio in 2016 is 0.61

h)

Summary Introduction

To determine: Days of inventory.

h)

Expert Solution
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Explanation of Solution

Calculation of days if inventory:

Days of inventory in 2017=Inventory(Cost of goods sold365)=$338,590($2,301,181365)=53.71days

Days of inventory in 2017 is 53.71 days

Days of inventory in 2016=Inventory(Cost of goods sold365)=$330,223($2,243,232365)=53.73days

Days of inventory in 2016 is 53.73 days

i)

Summary Introduction

To determine: Inventory turnover ratio.

i)

Expert Solution
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Explanation of Solution

Calculation of inventory turnover ratio:

Inventory turnover ratio in 2017=Cost of goods soldInventory=$2,301,181$338,590=6.8timesperyear

Inventory turnover ratio in 2017 is 6.8 times per year.

Inventory turnover ratio in 2016=Cost of goods soldInventory=$2,243,232$330,223=6.79timesperyear

Inventory turnover ratio in 2016 is 6.79 times per year.

j)

Summary Introduction

To determine: Average collection period.

j)

Expert Solution
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Explanation of Solution

Calculation of average collection period:

Average collection period in 2017=Accounts receivable(Total assets365)=$54,505($3,545,794365)=5.61days

Average collection period in 2017 is 5.61 days

Average collection period in 2016=Accounts receivable(Total assets365)=$75,723($3,445,134365)=8.02days

Average collection period in 2016 is 8.02 days

Based on these financial ratios it is observed that, the financial performance of company is good but flat in the year 2016.

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