Question

Financial data for Joel de Paris, Inc., for last year follow:

Joel de Paris, Inc.
Balance Sheet
Beginning
Balance Ending
Balance
Assets
Cash $ 129,000 $ 132,000
Accounts receivable 344,000 471,000
Inventory 568,000 471,000
Plant and equipment, net 819,000 826,000
Investment in Buisson, S.A. 392,000 434,000
Land (undeveloped) 253,000 251,000
Total assets $ 2,505,000 $ 2,585,000
Liabilities and Stockholders' Equity
Accounts payable $ 386,000 $ 349,000
Long-term debt 1,027,000 1,027,000
Stockholders' equity 1,092,000 1,209,000
Total liabilities and stockholders' equity $ 2,505,000 $ 2,585,000


Joel de Paris, Inc.
Income Statement
Sales $ 4,700,000
Operating expenses 4,042,000
Net operating income 658,000
Interest and taxes:
Interest expense $ 121,000
Tax expense 204,000 325,000
Net income $ 333,000


The company paid dividends of $216,000 last year. The "Investment in Buisson, S.A.," on the balance sheet represents an investment in the stock of another company.



Required:
1.
Compute the company’s margin, turnover, and return on investment (ROI) for last year. (Round your answers to 2 decimal places.)




2.
The board of directors of Joel de Paris, Inc., has set a minimum required rate of return of 21%. What was the company’s residual income last year?

Answer 1

profit margin: 7.09%

Turnover:

Assets : 1.85

Account Receivable: 11.53

Inventory: 9.05

ROI: 28.94%

2.- residual income 91,395

Step-by-step explanation:

sales 4,700,000

net income 333,000

profit margin:

net income / sales

333,000 / 4,700,000 = 0,070851 = 7.09%

Turnovers:

Will be sales over an asset account to calcualte how many times the assets converts to cash or rotate.

the average will be calcualte as (beginning + ending)/2

Assets turnover:

sales/average assets

sales 4,700,000

(2,505,000 + 2,585,000) / 2 = 2,545,000

Ratio: 1,8467 = 1.85

Account Receivable Turnover:

sales/ average turnover

sales 4,700,000

(344,000 +471,000)/2 = 407,500

Ratio: 11,5337 = 11.53

Inventory Turnover

Sales/ average inventory

Sales 4,700,000

(568,000 + 471,000)/2 = 519,500

Inventory turnover: 9,04716 = 9.05

ROI

net income / average equity

where:

average equity : (beginning + ending)/2

1,092,000 + 1,209,000 = 1,150,500

333,000/1,150,500 = 0,28943

Residual income:

net income - Equity x expected return

333,000 - 1,150,500 x 0.21 =

333,000 - 241,605‬ = 91,395