1. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 17-2 Calculating Earnings Performance and Efficiency Analysis

2. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 2 LESSON 17-2 Average Total Assets Net Income after Federal Income Tax Rate Earned on Average Total Assets ÷= $222,300.00÷=11.6%$1,913,700.00 page 503 RATE EARNED ON AVERAGE TOTAL ASSETS December 31 Total Assets January 1 Total Assets Average Total Assets +=÷2 ($1,759,700.00 += $1,913,700.00$2,067,700.00) ÷2

3. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 3 LESSON 17-2 CALCULATING THE RATE EARNED ON AVERAGE TOTAL ASSETS page 504 Current YearPrior Year Net Income after Federal Income Tax$ 222,300.00$128,400.00 January 1 Total Assets1,759,700.001,437,600.00 December 31 Total Assets2,067,700.001,759,700.00 Average Total Assets1,913,700.001,598,650.00 Rate Earned on Average Total Assets11.6%8.0%

4. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 4 LESSON 17-2 December 31 Stockholders’ Equity January 1 Stockholders’ Equity Average Total Stockholders’ Equity +=÷2 RATE OF RETURN EARNED ON AVERAGE STOCKHOLDERS’ EQUITY Average Total Stockholders’ Equity Net Income after Federal Income Tax Rate Earned on Average Stockholders’ Equity ÷= $222,300.00÷=23.4%$950,450.00 ($849,300.00 += $950,450.00$1,051,600.00) ÷2 page 505

5. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 5 LESSON 17-2 page 506 Net Income after Federal Income Tax ÷ Net Sales = Rate Earned on Net Sales RATE EARNED ON NET SALES ÷ $4,767,200.00 = 4.7% $222,300.00

6. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 6 LESSON 17-2 page 507 EARNINGS PER SHARE Net Income after Federal Income Tax ÷= Earnings per Share Shares of Capital Stock Outstanding = $3.71 $222,300.00 ÷ 60,000.00

7. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 7 LESSON 17-2 page 508 PRICE-EARNINGS RATIO Earnings per Share Market Price per Share Price-Earnings Ratio ÷= $43.50÷=11.7 times$3.71

8. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 8 LESSON 17-2 page 509 ACCOUNTS RECEIVABLE TURNOVER RATIO Ending Book Value of Accounts Receivable Beginning Book Value of Accounts Receivable Average Book Value of Accounts Receivable +=÷2 Net Sales on Account Accounts Receivable Turnover Ratio ÷= $4,767,200.00÷=9.1 times$521,600.00 ($569,200.00 += $521,600.00$474,000.00) ÷2

9. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 9 LESSON 17-2 page 510 AVERAGE NUMBER OF DAYS FOR PAYMENT Accounts Receivable Turnover Ratio Days in Year Average Number of Days for Payment ÷= 365÷=40 days9.1

10. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 10 LESSON 17-2 Average Merchandise Inventory Cost of Merchandise Sold Merchandise Inventory Turnover Ratio ÷= page 510 MERCHANDISE INVENTORY TURNOVER RATIO December 31 Merchandise Inventory January 1 Merchandise Inventory Average Merchandise Inventory +=÷2 $2,602,800.00÷=5.4 times$485,850.00 ($423,800.00 += $485,850.00$547,900.00) ÷2

11. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 11 LESSON 17-2 page 511 TERM REVIEW rate earned on net sales