Managerial Accounting Homework

Question

Liz Marett is the chief financial officer for Fulton Restaurants.  She delivered the following comments in a recent conference call with analysts that follow the company:                          

            "20X5 was another excellent year.  Net income was a record setting $10,000,000.  Food Revenue reflected 60% of total revenue with the remainder being beverage and other.  We maintained our overall profit margin at the historic 10% level.  This occurred despite an increase in food costs that lowered our food department gross profit to 55%.  We are proud that we continue to maintain a healthy balance sheet that is free of any liabilities.  All of our financing continues to be provided by our common and preferred shareholders.  Our beginning of year equity of $75,000,000 was sufficient to fund our capital needs, and no additional shares were issued this year.  Our shareholders have again received their full $2,000,000 in dividends for the year.  The remaining earnings have been reinvested in the company."     

 

Use profitability ratios to determine Fulton's:

Total sales
Food Revenue
food cost of goods sold
net income

Answer 1

Profitability ratios are used to determine trends overtime with working capital and net income after taxes.. 

Profitability is measured, primarily, using Net Profit and Earnings Per Share (EPS) ratios..

Net Profit ratios measure Net Income after taxes to Net Sales.. Earnings Per Share ratios (EPS) measure Net Income after taxes, less dividend payments to Preferred Stockholders, divided by outstanding common stock shares..

 

 

Formula for Net Profit ratio:
(Net Income after taxes / Net Sales) x 100

Formula for Earnings Per Share (EPS):
Net Income after taxes less Preferred stock dividends (divided by) /
 average # of Common Stock shares outstanding

 

 

The information given in the question is insufficient,,

 

 

Answer 2

Total sales: $10,000,000 (net income)/10% (overall profit margin)=$100,000,000

Food revenue: $100,000,000 (Total sales/revenue)*60% (Food's share of total revenue)=$60,000,000

Food COGS: $60,000,000 (Food revenue)*[100%-55% (Food gross profit)]=$27,000,000

Net Income (?): $10,000,000 (Net income was a record setting $10,000,000, given in the comments)