Evaluating Operating Performance Information is provided below for two companies that produce and sell audio magnification devices for the hearing impaired.
|
John, Inc. |
Roberta Company |
|||
|
2005 |
2004 |
2005 |
2004 |
|
|
Sales revenue |
825 |
770 |
352 |
330 |
|
Cost of goods sold |
540 |
504 |
250 |
216 |
|
Gross profit |
285 |
266 |
102 |
114 |
|
Operating expenses |
168 |
189 |
70 |
60 |
|
Operating income |
117 |
77 |
32 |
54 |
|
Interest expense |
30 |
20 |
10 |
8 |
|
Income before tax |
87 |
57 |
22 |
46 |
|
Tax |
30 |
20 |
8 |
16 |
|
Net income |
57 |
37 |
14 |
30 |
|
Accounts receivable |
78 |
73 |
39 |
34 |
|
Inventories |
139 |
136 |
85 |
71 |
|
Fixed assets |
900 |
850 |
600 |
550 |
|
Total assets |
1,630 |
1,530 |
850 |
765 |
Required
A. For each company and each year, compute the following measures:
1. Profit margin
2. Gross profit margin
3. Operating profit margin
4. Asset turnover
5. Accounts receivable turnover
6. Inventory turnover
7. Return on assets
8. Fixed asset turnover
9. Times interest earned
10. Day’s sales in inventory
11. Average collection period for accounts receivable
B. For each year, prepare a schedule summarizing which company had the better value of each ratio.
C. Prepare a schedule that shows, for each company, whether the value of each ratio improved or declined.
D. Which firm had the stronger operating performance during the periods studied? Briefly summarize why.