Question

Below is financial information for two sporting goods retailers. Extreme Sports Company operates a retail business and franchising business. At the end 2011, Extreme Sports had 263 Company-owned and 120 franchise-operated retail stores. Extreme's stores are located in suburban, strip mall and regional mall locations, the company operates in 32 states. All Sports Corporation sells sporting goods and related products at over 2,500 Company-operated retail stores.
Selected Data for All Sports and Extreme Sports (amounts in millions):
All Sports Extreme Sports
Sales $5,320 $1,344
Cost of Goods Sold 3,897 887
Interest Expense 138 43
Net Income 212 33
Average Accounts Receivable 114 18
Average Inventory 998 286
Average Fixed Assets 1,163 130
Average Total Assets 2,472 662
Average Tax Rate 40% 40%
Calculate the following ratios for All Sports and Extreme Sports: If required, round your answers to two decimal places.
Find the following for each: All Sports / Extreme Sports
a. Return on assets
b. Profit Margin for ROA
c. Assets turnover
d. Accounts receivable turnover
e. Inventory turnover
f. Fixed asset turnover

Answer 1

Answer:

All Sports Company and Extreme Sports Company

                                          All Sports                   Extreme Sports

a. Return on assets (ROA) = Profit margin * Assets turnover

=                                       3.98%*2.15                2.46%*2.03

=                                       8.56%                         4.99%

b. Profit Margin for ROA = Net income/Sales

=                                      ($212/5,320 * 100)     ($33/1,344 * 100)

=                                        3.98%                          2.46%

c. Assets turnover = Sales/Total assets

=                                       $5,320/$2,472          $1,344/$662

=                                       2.15                              2.03

d. Accounts receivable turnover = Credit Sales/Average receivable

=                                       $5,320/$114             $1,344/$18

=                                        46.67x                        74.67x

e. Inventory turnover = Cost of goods sold/Average Inventory

=                                       $3,897/$998            $887/$286

=                                       3.9x                            3.10x

f. Fixed asset turnover = Sales/Fixed assets

=                                       $5,320/$1,163         $1,344/$130

=                                       4.57x                        1.03x

Explanation:

a) Data and Calculations:

                                             All Sports     Extreme Sports

Sales                                        $5,320             $1,344

Cost of Goods Sold                   3,897                  887

Interest Expense                          138                     43

Net Income                                   212                    33

Average Accounts Receivable     114                     18

Average Inventory                      998                  286

Average Fixed Assets               1,163                   130

Average Total Assets              2,472                  662

Average Tax Rate                      40%                  40%