21.Profit Margin [LO4]In response to complaints about high prices, a grocery chain runs the followingadvertising campaign: “If you pay your child $3 to go buy $50 worth of groceries, then your childmakes twice as much on the trip as we do.” You’ve collected the following information from thegrocery chain’s financial statements:(millions)Sales$750 Net income22.5
18/4/18, 3(17 PMIEB WireframePage 15 of 22Total assets420 Total debt280 Evaluate the grocery chain’s claim. What is the basis for the statement? Is this claim misleading?Why or why not?22.Return on Equity [LO2]Firm A and firm B have debt–total asset ratios of 30 percent and 25 percentand returns on total assets of 12 percent and 11 percent, respectively. Which firm has a greater returnon equity?Answer23.Calculating the Cash Coverage Ratio [LO2]J-Pop Inc.’s net income for the most recent year was$13,168. The tax rate was 34 percent. The firm paid $3,605 in total interest expense and deducted$2,382 in depreciation expense. What was the cash coverage ratio for the year?24.Cost of Goods Sold [LO2]Hollyday Corp. has current liabilities of $365,000, a quick ratio of 0.75,inventory turnover of 5.8, and a current ratio of 1.6. What is the cost of goods sold for the company?25.Ratios and Foreign Companies [LO2]Prince Charming PLC had a net loss of £13,482 on sales of£138,793 (both in thousands of pounds). What was the company’s profit margin? Does the fact thatthese figures are quoted in a foreign currency make any difference? Why? In dollars, sales were$274,213,000. What was the net loss in dollars?Page 87Some recent financial statements for Tiger Golf Corp. follow. Use this information to work Problem26 through 30.TIGER GOLF CORP.2014 and 2015 Balance SheetsAssetsLiabilities and Owners’ Equity20142015 20142015CurrentassetsCurrentliabilities
18/4/18, 3(17 PMIEB WireframePage 16 of 22Cash$21,860 $ 22,050 Accountspayable$ 19,320 $ 22,850Accountsreceivable11,31613,850 Notes payable10,0009,000Inventory23,08424,650Other9,64311,385Total$56,260$ 60,550Total$ 38,963$ 43,235Long-term debt$ 75,000 $ 85,000Owners’ equityCommonstock andpaid-in surplus$ 25,000 $ 25,000Fixed assetsAccumulatedretainedearnings151,365167,840Net plantandequipment234,068260,525Total$176,365$192,840Total assets$290,328$321,075Total liabilitiesand owners’equity$290,328$321,075TIGER GOLF CORP.2015 Income StatementSales$305,830Cost of goods sold210,935Depreciation26,850
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