Question

Use the following information to answer this question.

Windswept, Inc. 2017 Income Statement ($ in millions)
Net sales	$	8,950
Cost of goods sold		7,490
Depreciation		425
Earnings before interest and taxes	$	1,035
Interest paid		94
Taxable income	$	941
Taxes		329
Net income	$	612

  

Windswept, Inc. 2016 and 2017 Balance Sheets ($ in millions)
		2016			2017				2016			2017
Cash	$	170		$	200		Accounts payable	$	1,150		$	1,285
Accounts rec.		880			780		Long-term debt		1,060			1,280
Inventory		1,640			1,595		Common stock		3,260			2,960
Total	$	2,690		$	2,575		Retained earnings		550			800
Net fixed assets		3,330			3,750
Total assets	$	6,020		$	6,325		Total liab. & equity	$	6,020		$	6,325

What is the days' sales in receivables for 2017?

Use the following information to answer this question.

Bayside, Inc. 2017 Income Statement ($ in thousands)
Net sales	$	6,720
Cost of goods sold		4,290
Depreciation		360
Earnings before interest and taxes	$	2,070
Interest paid		32
Taxable income	$	2,038
Taxes		713
Net income	$	1,325

  

Bayside, Inc. 2016 and 2017 Balance Sheets ($ in thousands)
		2016			2017				2016			2017
Cash	$	115		$	220		Accounts payable	$	1,565		$	1,920
Accounts rec.		1,010			850		Long-term debt		820			620
Inventory		1,700			2,080		Common stock		3,260			3,090
Total	$	2,825		$	3,150		Retained earnings		890			1,140
Net fixed assets		3,710			3,620
Total assets	$	6,535		$	6,770		Total liab. & equity	$	6,535		$	6,770

Use the following information to answer this question.

Windswept, Inc. 2017 Income Statement ($ in millions)
Net sales	$	9,000
Cost of goods sold		7,490
Depreciation		420
Earnings before interest and taxes	$	1,090
Interest paid		88
Taxable income	$	1,002
Taxes		351
Net income	$	651

  

Windswept, Inc. 2016 and 2017 Balance Sheets ($ in millions)
		2016			2017				2016			2017
Cash	$	180		$	215		Accounts payable	$	1,270		$	1,485
Accounts rec.		980			880		Long-term debt		1,030			1,295
Inventory		1,580			1,595		Common stock		3,270			2,930
Total	$	2,740		$	2,690		Retained earnings		490			740
Net fixed assets		3,320			3,760
Total assets	$	6,060		$	6,450		Total liab. & equity	$	6,060		$	6,450

What is the return on equity for 2017?

What is the equity multiplier for 2017?

Answer 1

Days sales in receivables =365 days*Average Accounts Receivable / Net Sales

Average Accounts Receivable =($780 + $880) / 2 =$830 mill

Days sales in receivables for 2017 = 365 days*$830 / $8,950 =33.85 days or 34 days

Return on equity = Net Income/Average Shareholders equity

Average Shareholders equity =($3270+$490+$2930+$740) / 2 =$3,715

Return on equity for 2017 = ($651 / $3,715)*100 =17.52%

Equity Multiplier(Average Total Assets / Average Shareholder's equity)

Average Total Assets =($6060+$6450) / 2 =$6,255

Average Shareholders equity =($3270+$490+$2930+$740) / 2 =$3,715

Equity Multiplier for 2017 =$6,255 / $3,715 =1.68