Question

14 Compare the reasons for the changes in return on equity for Eastnorth Manufacturing and its industry.

Balance Sheets for INDUSTRY:

December 31	2017	2016	2015
ASSETS
Cash and marketable securities	$30,000	$25,000	$20,000
Accounts receivable	110,000	90,000	60,000
Inventories	100,000	80,000	80,000
Total current assets	240,000	195,000	160,000
Gross plant and equipment	250,000	220,000	200,000
Less: accumulated depreciation	−100,000	−65,000	−50,000
Net plant and equipment	150,000	155,000	150,000
Land	50,000	50,000	50,000
Total fixed assets	200,000	205,000	200,000
Total assets	$440,000	$400,000	$360,000
LIABILITIES AND EQUITY
Accounts payable	$58,000	$50,000	$45,000
Notes payable	50,000	50,000	50,000
Accrued liabilities	0	0	0
Total current liabilities	108,000	100,000	95,000
Long-term debt	32,000	20,000	15,000
Total liabilities	$140,000	$120,000	$110,000
Total stockholders' equity	300,000	280,000	250,000
Total liabilities and equity	$440,000	$400,000	$360,000

Income Statements for INDUSTRY:

Years Ended December 31	2017	2016	2015
Net revenues or sales	$1,100,000	$1,000,000	$900,000
Cost of goods sold	700,000	650,000	600,000
Gross profit	$400,000	$350,000	$300,000
Operating expenses:
General and administrative	143,000	135,000	130,000
Selling and marketing	88,000	80,000	70,000
Depreciation	44,000	40,000	36,000
Operating income	125,000	95,000	64,000
Interest	15,000	15,000	14,000
Income before taxes	110,000	80,000	50,000
Income taxes (40%)	44,000	32,000	20,000
Net income	$66,000	$48,000	$30,000

December 31	2017	2016	2015
ASSETS
Cash and marketable securities	$25,000	$20,000	$16,000
Accounts receivable	100,000	80,000	56,000
Inventories	125,000	100,000	80,000
Total current assets	250,000	200,000	152,000
Gross plant and equipment	300,000	225,000	200,000
Less: accumulated depreciation	−100,000	−75,000	−50,000
Net plant and equipment	200,000	150,000	150,000
Land	50,000	50,000	50,000
Total fixed assets	250,000	200,000	200,000
Total assets	$500,000	$400,000	$352,000
LIABILITIES AND EQUITY
Accounts payable	$78,000	$65,000	$58,000
Notes payable	34,000	10,000	10,000
Accrued liabilities	30,000	25,000	25,000
Total current liabilities	142,000	100,000	93,000
Long-term debt	140,000	100,000	71,000
Total liabilities	$282,000	$200,000	$164,000
Common stock ($1 par, 50,000 shares)	$50,000	$50,000	$50,000
Paid-in capital	100,000	100,000	100,000
Retained earnings	68,000	50,000	38,000
Total stockholders' equity	218,000	200,000	188,000
Total liabilities and equity	$500,000	$400,000	$352,000

Years Ended December 31	2017	2016	2015
Net revenues or sales	$700,000	$600,000	$540,000
Cost of goods sold	450,000	375,000	338,000
Gross profit	250,000	225,000	202,000
Operating expenses:
General and administrative	95,000	95,000	95,000
Selling and marketing	56,000	50,000	45,000
Depreciation	25,000	20,000	15,000
Operating income	74,000	60,000	47,000
Interest	14,000	10,000	7,000
Income before taxes	60,000	50,000	40,000
Income taxes (40%)	24,000	20,000	16,000
Net income	$36,000	$30,000	$24,000
Number of shares outstanding	50,000	50,000	50,000
Earnings per share	$0.72	$0.60	$0.48

Answer 1