| Financial data for Joel de Paris, Inc., for last year follow: |
| Joel de Paris, Inc. Balance Sheet |
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| Beginning Balance |
Ending Balance |
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| Assets | ||||
| Cash | $ | 135,000 | $ | 127,000 |
| Accounts receivable | 338,000 | 481,000 | ||
| Inventory | 564,000 | 477,000 | ||
| Plant and equipment, net | 863,000 | 855,000 | ||
| Investment in Buisson, S.A. | 407,000 | 434,000 | ||
| Land (undeveloped) | 253,000 | 253,000 | ||
| Total assets | $ | 2,560,000 | $ | 2,627,000 |
| Liabilities and Stockholders’ Equity | ||||
| Accounts payable | $ | 387,000 | $ | 343,000 |
| Long-term debt | 958,000 | 958,000 | ||
| Stockholders’ equity | 1,215,000 | 1,326,000 | ||
| Total liabilities and stockholders’ equity | $ | 2,560,000 | $ | 2,627,000 |
| Joel de Paris, Inc. Income Statement |
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| Sales | $ | 4,224,000 | |
| Operating expenses | 3,632,640 | ||
| Net operating income | 591,360 | ||
| Interest and taxes: | |||
| Interest expense | $ 126,000 | ||
| Tax expense | 202,000 | 328,000 | |
| Net income | $ | 263,360 | |
| The company paid dividends of $152,360 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.) |
| 2. | The board of directors of Joel de Paris, Inc., has set a minimum required rate of return of 20%. What was the company’s residual income last year? |
1
Compute the company’s margin, turnover, and return on investment (ROI) for last year.
Operating assets do not include investment in other company or undevloped land
| Assets | Ending ` | Beginig |
| Cash | 127,000 | 135,000 |
| Accounts receivable | 481,000 | 338,000 |
| Inventory | 477,000 | 564,000 |
| Plant and equipment, net | 855,000 | 863,000 |
| Total Operating Assets | 1940000 | 1900000 |
Average operating Assets = 1940000+1900000 /2
=1920000
Margin = Net opearating Income / Sales
= 591360 /4224000
=14%
Turn Over = Sales / Average operating Assets
= 4224000/1920000
=2.2
ROI = Margin * turnover
= 14 % *2.2
=30.8%
| Margin | 14% |
| Turnover | 2.2 |
| Return On investment | 30.8 |
2
The board of directors of Joel de Paris, Inc., has set a minimum required rate of return of 20%. What was the company’s residual income last year
| Net operating income | 591360 |
| Minimum Required Return (1920000*20%) |
384000 |
| Residual Income | 207360 |
