Exercise 12-5 Evaluate risk ratios [LO3] The 2012 income statement of Adrian Express reports sales of $16 million, cost of goods sold of $9.6 million, and net income of $1.6 million. Balance sheet information is provided in the following table. All amounts are in thousands. ADRIAN EXPRESS Balance Sheets December 31, 2012 and 2011   ($ in 000s)   2012   2011  Assets   Current assets:        Cash $ 600   $ 760          Accounts receivable 1,400   1,000          Inventory 1,800   1,400     Long-term assets 4,800   4,240             Total assets $ 8,600   $ 7,400   Liabilities and Stockholders' Equity   Current liabilities $ 2,020   $ 1,660     Long-term liabilities 2,300   2,400     Common stock 2,000   2,000     Retained earnings 2,280   1,340             Total liabilities and stockholders' equity $ 8,600   $ 7,400   Industry averages for the following four risk ratios are as follows:   Average collection period 25 days     Average days in inventory 60 days     Current ratio 2 to 1     Debt to equity ratio 50%   Required: 1. Calculate the four risk ratios listed above for Adrian Express in 2012. (Use 365 days in a year. Round your answers to 1 decimal place. Omit the "%" sign in your response.)   Risk Ratios   Average collection period  days   Average days in inventory  days   Current ratio  to 1   Debt to equity ratio  % 2. Do you think the company is more risky or less risky than the industry averages? The 2012 income statement of Adrian Express reports sales of $16 million, cost of goods sold of $9.6 million, and net income of $1.6 million. Balance sheet information is provided in the following table. All amounts are in thousands. ADRIAN EXPRESS Balance Sheet December 31, 2012 and 2011   ($ in 000s)    2012    2011 Assets   Current assets:       Cash $ 600   $ 760         Accounts receivable 1,400   1,000         Inventory 1,800   1,400     Long-term assets 4,800   4,240            Total assets $ 8,600   $ 7,400   Liabilities and Stockholders' Equity   Current liabilities $ 2,020   $ 1,660     Long-term liabilities 2,300   2,400     Common stock 2,000   2,000     Retained earnings 2,280   1,340            Total liabilities and stockholders' equity $ 8,600   $ 7,400   Industry averages for the following four risk ratios are as follows:   Gross profit ratio 45  %   Return on assets 25  %   Profit margin 15  %   Asset turnover 2.5  times   Return on equity 35  % Required: 1. Calculate the five profitability ratios listed above for Adrian Express. (Round your answers to the nearest whole number. Omit the "%" sign in your response.)   Profitability Ratios   Gross profit ratio %          Return on assets %          Profit margin %          Asset turnover times     Return on equity %        2. Do you think the company is more profitable or less profitable than the industry averages? The balance sheet for P ...

1. Exercise 12-5 Evaluate risk ratios [LO3]
The 2012 income statement of Adrian Express reports sales of
$16 million, cost of goods sold of $9.6 million, and net income
of $1.6 million. Balance sheet information is provided in the
following table. All amounts are in thousands.
ADRIAN EXPRESS
Balance Sheets
December 31, 2012 and 2011
($ in 000s)
2012
2011
Assets
Current assets:
Cash
$
600
$
760
Accounts receivable
1,400
1,000
Inventory

2. 1,800
1,400
Long-term assets
4,800
4,240
Total assets
$
8,600
$
7,400
Liabilities and Stockholders' Equity
Current liabilities
$
2,020

3. $
1,660
Long-term liabilities
2,300
2,400
Common stock
2,000
2,000
Retained earnings
2,280
1,340
Total liabilities and stockholders' equity
$
8,600
$
7,400

4. Industry averages for the following four risk ratios are as
follows:
Average collection period
25 days
Average days in inventory
60 days
Current ratio
2 to 1
Debt to equity ratio
50%
Required:
1.
Calculate the four risk ratios listed above for Adrian Express in
2012. (Use 365 days in a year. Round your answers to 1 decimal
place. Omit the "%" sign in your response.)
Risk Ratios
Average collection period
days
Average days in inventory
days
Current ratio

5. to 1
Debt to equity ratio
%
2.
Do you think the company is more risky or less risky than the
industry averages?
The 2012 income statement of Adrian Express reports sales of
$16 million, cost of goods sold of $9.6 million, and net income
of $1.6 million. Balance sheet information is provided in the
following table. All amounts are in thousands.
ADRIAN EXPRESS
Balance Sheet
December 31, 2012 and 2011
($ in 000s)
2012
2011
Assets
Current assets:

6. Cash
$
600
$
760
Accounts receivable
1,400
1,000
Inventory
1,800
1,400
Long-term assets
4,800
4,240
Total assets
$
8,600
$
7,400

7. Liabilities and Stockholders' Equity
Current liabilities
$
2,020
$
1,660
Long-term liabilities
2,300
2,400
Common stock
2,000
2,000
Retained earnings
2,280
1,340
Total liabilities and stockholders' equity
$
8,600

8. $
7,400
Industry averages for the following four risk ratios are as
follows:
Gross profit ratio
45
%
Return on assets
25
%
Profit margin
15
%
Asset turnover
2.5
times
Return on equity
35
%
Required:

9. 1.
Calculate the five profitability ratios listed above for Adrian
Express. (Round your answers to the nearest whole number.
Omit the "%" sign in your response.)
Profitability Ratios
Gross profit ratio
%
Return on assets
%
Profit margin
%
Asset turnover
times
Return on equity
%
2.
Do you think the company is more profitable or less profitable
than the industry averages?
The balance sheet for Plasma Screens Corporation and
additional information are provided below.
PLASMA SCREENS CORPORATION
Balance Sheet
December 31, 2012 and 2011
2012
2011
Assets

10. Current assets:
Cash
$
112,000
$
120,000
Accounts receivable
78,000
92,000
Inventory
95,000
80,000
Investments
4,000
2,000
Long-term assets:
Land
480,000

11. 480,000
Equipment
90,000
670,000
Less: Accumulated depreciation
(428,000)
(268,000)
Total assets
$
1,131,000
$
1,176,000
Liabilities and Stockholders' Equity

12. Current liabilities:
Accounts payable
$
99,000
$
85,000
Interest payable
6,000
12,000
Income tax payable
8,000
5,000
Long-term liabilities:
Notes payable
100,000
200,000
Stockholders' equity:
Common stock

13. 700,000
700,000
Retained earnings
218,000
174,000
Total liabilities and stockholders' equity
$
1,131,000
$
1,176,000
Additional information for 2012:
1.
Net income is $69,000.
2.
Sales on account are $1,520,000.
3.

14. Cost of goods sold is $1,160,000.
references
Section Break
Exercise 12-7 Calculate risk ratios [LO3]
3.
value:
2.00 points
Exercise 12-7 Part 1
Required:
1.
Calculate the following risk ratios for 2012 (Round your
answers to 1 decimal place. Omit the "%" sign in your
response):
Risk Ratios
a.
Receivables turnover ratio
times
b.
Inventory turnover ratio
times
c.
Current ratio
to 1
d.
Acid-test ratio

15. to 1
e.
Debt to equity ratio
%
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Worksheet
Difficulty: Hard
Exercise 12-7 Part 1
Learning Objective: 12-03 Use ratios to analyze a company’s
risk.
4.
value:
1.00 points
Exercise 12-7 Part 2
2.
When we compare two companies, can one have a higher current
ratio while the other has a higher acid-test ratio?
Yes
No
Exercise 12-9 Calculate profitability ratios [LO4]
[The following information applies to the questions displayed
below.]
The following condensed information is reported by Sporting

16. Collectibles.
2013
2012
Income Statement Information
Sales revenue
$
10,400,000
$
8,400,000
Cost of goods sold
6,800,000
5,900,000
Net income
360,000
248,000
Balance Sheet Information
Current assets

17. $
1,600,000
$
1,500,000
Long-term assets
2,200,000
1,900,000
Total assets
$
3,800,000
$
3,400,000
Current liabilities
$
1,200,000
$
900,000
Long-term liabilities
1,500,000

18. 1,500,000
Common stock
800,000
800,000
Retained earnings
300,000
200,000
Total liabilities and stockholders' equity
$
3,800,000
$
3,400,000
references
Section Break
Exercise 12-9 Calculate profitability ratios [LO4]

19. 5.
value:
2.00 points
Exercise 12-9 Part 1
Required:
1.
Calculate the following profitability ratios for 2013 (Round
your answers to 1 decimal place. Omit the "%" sign in your
response):
Profitability Ratios
a.
Gross profit ratio
%
b.
Return on assets
%
c.
Profit margin
%
d.
Asset turnover
times
e.

20. Return on equity
%
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Worksheet
Difficulty: Hard
Exercise 12-9 Part 1
Learning Objective: 12-04 Use ratios to analyze a companys
profitability.
6.
value:
1.00 points
Exercise 12-9 Part 2
2.
Determine the amount of dividends paid to shareholders in
2013. (Omit the "$" sign in your response.)
The amount of dividends paid
$
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Worksheet
Difficulty: Hard
Exercise 12-9 Part 2
Learning Objective: 12-04 Use ratios to analyze a companys
profitability.