Problem 1. Singular Corp. has the following income statement data:
2006 2007
Sales $ 500,000 $ 700,000
Gross profit 161,300 205,000
Selling and administrative expense 45,200 74,300
Interest expense 15,200 29,100
Net income (after these and other expenses) 44,100 45,600
a. Compute the ratio of each of the last four items to sales for 2006 and 2007.
b. Based on your calculations, is the company improving or declining in its performance?
Problem 2. A company has $200,000 in inventory, which represents 20 percent of current assets. Current assets represent 50 percent of total assets. Total debt represents 30 percent of total assets. What is stockholders' equity?
Problem 3. Given the following financial data: Net income/Sales = 4 percent; Sales/Total assets = 3.5 times; Debt/Total assets = 60 percent; compute:
a. Return on assets.
b. Return on equity.
Problem 4: In the year 2007, the average firm in the S&P 500 Index had a total market value of fives times stockholders' equity (book value). Assume a firm had total assets of $10 million, total debt of $6 million, and net income of $600,000.
a. What is the percent return on equity?
b. What is the percent return on total market value? Does this appear to be an adequate return on the actual market value of the firm?
Problem 5: In problem, if total debt were increased to 50 percent of assets and interest payments went up by $300, what would be the new value for return on equity?