Chapter 2 Problem 1 Page 1

Data for Campsey Computer Company and its industry averages follow.

CCC: Balance Sheet as 12/31/12

Cash 77,500 A/P 129,000
Receivable 336,000 N/P 84,000
Inventories 241,500 Other CL 117,000
Total CA 655,000 Total CL 330,000
Net FA 292,500 L-T Debt 256,5000
CE 361,000
TA 947,500 Total L&E 947,500

Sales 1,607,500
COGS 1,351,000
Depreciation 41,500
Gross Profit 215,000
Admin & Selling 145,000
EBIT 70,000
Interest 24,500
TI 45,500
Taxes (40%) 18,200
Net Income 27,300
+ Dep
CF
 Chapter 2 Problem 1 Page 2

a) Calculate the indicated ratios for Campsey

Ratio Campsey Industry Strengths

Average Weaknesses
CR Current Assets 655000 2.0 x
330000 = 1.98 x
Current Liabilities
DSO Accounts Receivable 336000 35 Days W
4465.28 = 75 Days
Sales/360
Inventory Sales 1607500 6.7 x
Turnover = 6.66 x
Inventories 241500
TAT Sales 1607500 3x W
= 1.70 x
Total Assets 947500
PM Net Income 27300 1.2% Above
Sales 1607500 = 0.017 = 1.7% Industry
ROA Net Income 27300 3.6% Should Be
Total Assets 947500 = 0.029 = 2.9% Higher
ROE Net Income 27300 9% Should Be
Common Equity 361000 = 0.076 = 7.6% Higher
DR Total Debt 586500 60.0%
Total Assets 947500 = 0.619 = 61.9%
Chapter 2 Problem 1 Page 3

b) Du Pont Equations for Campsey:

ROA = Profit Margin x Total Asset Turnover

Net Income Sales

=
Sales Total Assets

27300 1607500
=
1607500 947500

= (0.0170) (1.6966)

= 2.88%

ROE = ROA x Equity Multiplier

Net Income Total Assets

=
Total Assets Common Equity

947,500
= 2.88
361,000

= 7.56%

Du Pont Equations for Industry:

ROA = (1.2%) (3.0)

= 3.6%

ROE = ROA x Equity Multiplier

1
= 3.6% = 3.6% 2.5
1 - .60