The Following Balance Sheets and Income Statements Are for Net

question 58

Essay

The following balance sheets and income statements are for Net Devices Inc., a manufacturer of small electronic devices, including calculators, personal digital assistants and mp3 players. Use the information to calculate the following information:
a. Compute the rate of return on assets for Net Devices for both 2011 and 2010. Disaggregate the rate of return on assets into the profit margin on ROA and asset turnover components. The income tax rate is 35%.
b. Calculate the accounts receivable turnover ratio for Net Devices for 2011 and 2010. All of the company’s sales were made on account.
c. Calculate the inventory turnover ratio for Net Devices for 2011 and 2010.
d. Calculate the fixed assets turnover ratio for Net Devices for 2011 and 2010.
e. Calculate the rate of return on common shareholders’ equity for Net Devices for 2011 and 2010. The amount of preferred dividends paid each year appear after the income statement. Calculate profit margin for ROCE.
f. Determine Net Devices capital structure leverage for 2011 and 2010.
g. Calculate Net Devices earnings per share for 2011 and 2010.

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Definitions:

Investment Turnover

A financial ratio that measures how effectively a company uses its assets to generate sales revenue; a higher turnover indicates better performance.

Profit Margin

The ratio of net income to revenue, indicating how much profit is generated per dollar of sales.

Return on Investment

A financial metric used to assess the profitability or efficiency of an investment, calculated by dividing the benefit (return) of an investment by the cost of the investment.

Profit Margin

A financial metric indicating the percentage of revenue that exceeds the cost of goods sold, showcasing the profitability of a company or product.