Answer:
Adrian Express
1. Five Profitability Ratios:
Gross profit ratio: = 39.2%
Return on assets = 20%
Profit margin = 9.6%
Asset turnover = 2.1 times
Return on equity = 37.4%
2. I think the company is:
Less profitable
than the industry average.
Explanation:
a) Data and Calculations:
Sales Revenue     $20,710,000
Cost of goods sold $12,600,000
Gross profit         $8,110,000
Net income        $1,980,000
ADRIAN EXPRESS
Balance Sheets
December 31, 2021 and 2020
                                     2021          2020
Assets
Current assets:
Cash                                $840,000       $930,000
Accounts receivable                   1,775,000       1,205,000
Inventory                            2,245,000       1,675,000
Current assets                      $4,860,000      $3,810,000
Long-term assets                     5,040,000       4,410,000
Total assets                       $ 9,900,000     $8,220,000
Liabilities and Stockholders' Equity
Current liabilities                   $ 2,074,000      $1,844,000
Long-term liabilities                  2,526,000      2,584,000
Common stock                      2,075,000      2,005,000
Retained earnings                   3,225,000       1,787,000
Total Equity                        5,300,000      3,792,000
Total liabilities & stockholders' equity  $9,900,000     $8,220,000
Industry averages for the following profitability ratios are as follows:
Gross profit ratio 45 %
Return on assets 25 %
Profit margin 15 %
Asset turnover 8.5 times
Return on equity 35 %
Gross profit ratio: = Gross profit/Sales * 100
= $8,110,000/$20,710,000 * 100
= 39.2%
Return on assets = Net income/Assets * 100
= $1,980,000/$9,900,000 * 100
= 20%
Profit margin = Net Income/Sales * 100
= $1,980,000/$20,710,000 * 100
= 9.6%
Asset turnover = Sales/Total Assets
= $20,710,000/$9,900,000 = 2.1 times
Return on equity = Net Income/Total Equity * 100
= $1,980,000/$5,300,000 * 100
= 37.4%
