1. Business
  2. Finance
  3. financial statement analysis the annual sales for salco inc were...

Question: financial statement analysis the annual sales for salco inc were...

Question details

(Financial statement analysis) The annual sales for Salco, Inc. were $ 4.43 million last year. The firm's end-of-year balance sheet was as follows: LOADING.... Salco's income statement for the year was as follows: LOADING....

a. Calculate Salco's total asset turnover, operating profit margin, and operating return on assets.

b. Salco plans to renovate one of its plants and the renovation will require an added investment in plant and equipment of $ 1.06 million. The firm will maintain its present debt ratio of 50 percent when financing the new investment and expects sales to remain constant. The operating profit margin will rise to 13.5 percent. What will be the new operating return on assets ratio (i.e., net operating income divided by total assets) for Salco after the plant's renovation?

c. Given that the plant renovation in part (b ) occurs and Salco's interest expense rises by $ 53 comma 000 per year, what will be the return earned on the common stockholders' investment? Compare this rate of return with that earned before the renovation. Based on this comparison, did the renovation have a favorable effect on the profitability of the firm?

Current assets $510,000

Liabilities $993,000

Net fixed assets 1,476,000

​Owners' equity 993,000

Total Assets $1,986,000

Total $1,986,000

Sales $4,430,000

​Less: Cost of goods sold (3,498,000)

Gross profit $932,000

​Less: Operating expenses (501,000)

Net operating income $431,000

​Less: Interest expense (94,000)

Earnings before taxes $337,000

​Less: Taxes(35 %) (117,950)

Net income $219,050

Solution by an expert tutor
Blurred Solution
This question has been solved
Subscribe to see this solution