Using the 2004 financial statements in Amerbran Company (A) together with the 2003 income statement shown in Exhibit 1 in the (A) case, calculate the ratios listed below for 2003 and 2004. Use year-end amounts for ratios that involve balance sheet data. The company’s interest expense in 2003 and 2004 respectively was (in thousands) $105,165 and $102,791 respectively.

1. Return on assets
2. Return on equity
3. Gross margin percentage
4. Return on sales
5. Asset turnover
6. Days’ cash
7. Days’ receivables
8. Days’ inventories
9. Inventory turnover
10. Current ratio
11. Acid-test ratio
12. Debt-capitalization ratio
13. Times interest earned

Assignment

1. Comment on Amerbran’s treatment of excise taxes as part of the calculation of gross margin.
2. As an outside analyst, what questions would you want to ask Amerbran’s management based on the ratios you have calculated?
   

    

   AMERBRAN COMPANY (B)

   Exhibit 1. Income Statement

   For the Year Ended December 31, 2003

   (in thousands)

                                             

   Sales revenue, net                                                  $6,577,480

   Less:    Cost of sales                                               2,573,350

               Excise taxes on goods sold                           2,354,350

   Gross margin                                                                               1,649,780

   Selling, general, and administrative expenses                                   974,121

   Income before income taxes                                                           675,659

   Provision for income taxes                                                              296,877

      Net income                                                                               $378,782