The comparative financial statements for Prince Company are below: Year 2 Year 1 Income...
Question:
The comparative financial statements for Prince Company are below:
| Year 2 | Year 1 | |
|---|---|---|
| Income statement: | ||
| Sales revenue | $202,000 | $170,000 |
| Cost of goods sold | 115,000 | 101,200 |
| Gross profit | 87,000 | 68,800 |
| Operating expenses and interest expense | 57,200 | 53,600 |
| Pretax income | 29,800 | 15,200 |
| Income tax | 9,200 | 4,600 |
| Net income | $20,600 | $10,600 |
| Balance Sheet: | ||
| Cash | $5,200 | $7,600 |
| Accounts receivable (net) | 14,600 | 18,600 |
| Inventory | 41,200 | 36,400 |
| Property and equipment (net) | 46,800 | 39,200 |
| Total assets | $107,800 | $101,800 |
| Current liabilities (no interest) | $16,600 | $17,600 |
| Long-term liabilities (10% interest) | 45,600 | 45,600 |
| Common stock ($5 par value, 6,600 shares outstanding) | 33,000 | 33,000 |
| Retained earnings | 12,600 | 5,600 |
| Total liabilities and stockholders' equity | $107,800 | $101,800 |
Compute the ratios in the DuPont model for Year 2.
| Return on equity | _____% |
| Return on assets | _____% |
| Total asset turnover | _____ |
| Net profit margin | 10.20% |
| Financial leverage | _____ |
DuPont Analysis:
The DuPont analysis is used to decompose the return on equity into 3 components or 5 components. The 3 components for return on equity are total assets turnover ratio, net profit margin and financial leverage. For 5 components analysis, the net profit margin is further decomposed into product of operating margin, tax burden ratio and interest burden ratio.
Answer and Explanation: 1
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View this answerThe total shareholders' equity at the end of Year 2 is given by:
- = Common stock at the end of Year 2 + retained earnings at the end of Year 2
- {eq}=...
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