Explore BrainMass

Explore BrainMass

    Discrepancies between income statement and balance sheet

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    S&J Plumbing, Inc.'s 2010 income statement shows a net profit before tax of $468, whereas the balance sheet that the company's equity for the fiscal year-end 2010 is $1,746.

    a) Calculate the company's return on equity and whether the managers are providing a good return on the capital provided by the company's shareholders.
    b) Diagram the operating cycle of a service company.

    In addition:
    c) When analyzing statements, what external factors that affect business must be considered?
    d) What are the similarities between a firm's capital budgeting decisions and individual investment decisions.

    © BrainMass Inc. brainmass.com June 4, 2020, 3:41 am ad1c9bdddf
    https://brainmass.com/business/capital-budgeting/discrepancies-between-income-statement-and-balance-sheet-528672

    Solution Preview

    ROE is 468/1746 = 0.268 = 27%

    The managers of S&J Plumbing are indeed providing a good return for their shareholders because anything between 15% - 20% is favorable.

    Operating Cycle (Please see the attached document for an illustration)
    1. Perform services
    2. Accounts Receivable
    3. Get cash

    External factors that affect a firm's profitability may be issues such as: inflation, interest rates, exchange rates, and government policy. The firm's internal environment includes items that can be affected by management, such as ...

    Solution Summary

    This solution provides a detailed explanation and solution to the following questions:
    a) Calculate the company's return on equity and whether the managers are providing a good return on the capital provided by the company's shareholders.
    b) Diagram the operating cycle of a service company.
    An attachment is also provided with all diagrams needed for clear understanding of this problem.

    $2.19

    ADVERTISEMENT