Wednesday 1 April 2015

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

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


Joel de Paris, Inc.
Balance Sheet
    Beginning
Balance
 Ending
Balance
Assets
  Cash $ 125,000   $ 139,000  
  Accounts receivable   331,000     488,000  
  Inventory   573,000     472,000  
  Plant and equipment, net   871,000     841,000  
  Investment in Buisson, S.A.   407,000     433,000  
  Land (undeveloped)   248,000     246,000  
 



  Total assets $ 2,555,000   $ 2,619,000  
 







Liabilities and Stockholders' Equity
  Accounts payable $ 372,000   $ 337,000  
  Long-term debt   1,037,000     1,037,000  
  Stockholders' equity   1,146,000     1,245,000  
 



  Total liabilities and stockholders' equity $ 2,555,000   $ 2,619,000  
 










Joel de Paris, Inc.
Income Statement
   Sales   $ 4,224,000  
   Operating expenses     3,548,160  
   

   Net operating income     675,840  
   Interest and taxes:      
        Interest expense $ 127,000    
        Tax expense 197,000   324,000  
 


   Net income   $ 351,840  
   






     The company paid dividends of $252,840 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.) 
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Explanation:
1.
Operating assets do not include investments in other companies or in undeveloped land.

    Beginning
Balances
Ending Balances
  Cash $ 125,000   $ 139,000  
  Accounts receivable   331,000     488,000  
  Inventory   573,000     472,000  
  Plant and equipment (net)   871,000     841,000  
 







  Total operating assets $ 1,900,000   $ 1,940,000  
 















Average operating assets =
$1,940,000 + $1,900,000
=  $1,920,000
2


Margin =
Net operating income
   
Sales


  =
$675,840
= 16.00%
$4,224,000


Turnover =
Sales
   
Average operating assets


  =
$4,224,000
=  2.20
$1,920,000


 ROI =
 Margin × Turnover
  =  16.00% × 2.20 = 35.20%

2.
Minimum required return (14% × $1,920,000) = $268,800  


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