Using the income statement for J. Lo Wedding Gowns below, compute the following ratios:
a. The interest coverage.
b. The fixed charge coverage. The total assets for this company equal $160,000. Set up the equation for the Du Pont system of ratio analysis, and compute the answer to part c below using ratio 2 b on page 59.
c. Return on assets (investment).
J. Lo Wedding Gowns
Income Statement
| Sales |
$200,000 |
| Less:Cost of goods sold |
$90,000 |
| Gross profit |
$110,000 |
| Less:Selling and administartive expense |
40,000 |
| Less: Lease expense |
10,000 |
| Operating Profit |
60,000 |
| Less: Interest expenses |
6,000 |
| Earnings before taxes |
$55,000 |
| Less: taxes(40%) |
22,000 |
| Earnings after taxes |
33,000 |