Question

The Morris Corporation has $800,000 of debt outstanding, and it pays an interest rate of 10% annually. Morris's annual sales are $4 million, its average tax rate is 30%, and its net profit margin on sales is 3%. If the company does not maintain a TIE ratio of at least 5 to 1, its bank will refuse to renew the loan and bankruptcy will result. What is Morris's TIE ratio? Do not round intermediate calculations. Round your answer to two decimal places.

Balance Sheet Analysis Complete the balance sheet and sales information in the table that follows for J. White Industries using the following financial data: Total assets turnover: 2 Gross profit margin on sales: (Sales - Cost of goods sold)/Sales = 24% Total liabilities-to-assets ratio: 55% Quick ratio: 0.75 Days sales outstanding (based on 365-day year): 36.5 days Inventory turnover ratio: 5.0 Do not round intermediate calculations. Round your answers to the nearest whole dollar. Partial Income Statement Information Sales $   Cost of goods sold $   Balance Sheet Cash $   Accounts payable $   Accounts receivable    Long-term debt   50,000 Inventories    Common stock    Fixed assets    Retained earnings   100,000 Total assets $  400,000 Total liabilities and equity $   Analysis of Financial Statements: Tying the Ratios Together The DuPont equation shows the relationships among asset management, debt management, and -Select-liquiditymarketprofitabilityCorrect 1 of Item 1 ratios. Management can use the DuPont equation to analyze ways of improving the firm's performance. Its equation is: Ratio analysis is important to understand and interpret financial statements; however, sound financial analysis involves more than just calculating and interpreting numbers. -Select-QuantitativeQualitativeForeignCorrect 2 of Item 1 factors also need to be considered. Quantitative Problem: Rosnan Industries' 2018 and 2017 balance sheets and income statements are shown below. Balance Sheets: 2018 2017 Cash and equivalents $60   $45   Accounts receivable 275   300   Inventories 375   350         Total current assets $710   $695   Net plant and equipment 2,000   1,490   Total assets $2,710   $2,185   Accounts payable $150   $85   Accruals 75   50   Notes payable 110   135         Total current liabilities $335   $270   Long-term debt 450   290   Common stock 1,225   1,225   Retained earnings 700   400   Total liabilities and equity $2,710   $2,185   Income Statements: 2018 2017 Sales $2,000   $1,500   Operating costs excluding depreciation 1,250   1,000   EBITDA $750   $500   Depreciation and amortization 100   75   EBIT $650   $425   Interest 62   45   EBT $588   $380   Taxes (40%) 235   152   Net income $353   $228   Dividends paid $53   $48   Addition to retained earnings $300   $180   Shares outstanding 100   100   Price $25.00   $22.50   WACC 10.00%      What is the firm’s 2018 current ratio? Round your answer to two decimal places. If the industry average debt-to-total-assets ratio is 30%, then Rosnan’s creditors have a -Select-smallerbiggerCorrect 1 of Item 3 cushion than indicated by the industry average. What is the firm’s 2018 net profit margin? Round your answer to four decimal places. % If the industry average profit margin is 12%, then Rosnan’s lower than average debt-to-total-assets ratio might be one reason for its high profit margin. -Select-TrueFalseCorrect 1 of Item 4 What is the firm’s 2018 price/earnings ratio? Round your answer to two decimal places. Using the DuPont equation, what is the firm’s 2018 ROE? Round your answer to two decimal places. %

Answer 1

1. Debt = $8,00,000
interest rate = 10% annually
Annual Sales = $ 40,00,000
tax rate =30%
Net profit margin = 3% on sales
Net profit margin = 3% ($40,00,000)
Net profit = 4120,000
(+) interest   = $80,000
(+) tax@30%   =$ 36,000
EBIT	236,000
TIE Ratio = EBIT / Interest expense
TIE Ratio = $236,000/ $80,000
TIE Ratio = 2.95
2 .Total assets turnover = 2
GP margin on sales = 24%
total liabilities to assets ratio = 55%
Quick ratio = 0.75
Inventor turnover ratio = 5
total assets to ratio = Net sales / Average total assets
2 = Net sales / $ 400,000
Net sales = $800,000
GP margin ratio= Sales - COGS / sales
24% = $800,00-Cogs/ $800,000
Cogs = $608,000
total liabilities to assets ratio = total liabilities / total assets
55% = TL/$400,000
total liabilities=$ 220,000
Quick ratio = 0.75
Quick ratio = total current assets - inventory /current liabilities
0.75= TCA-$121,600/$170,000
Total current assets = $ 249,100
Inventor turnover ratio = COGS/Avg Invenory
5 =$608,000/Avg inventory
Inventory = $121,600
Partial income		Statement Inf
sales		$800,000
COGS		$608,000
Balance sheet
Cash	$   249,100	Accounts payable	$  1,70,000
Accounts receivable		Long-term debt	50,000
Inventories	$121,600	Common stock	$230,000
Fixed assets	$29,300	Retained earnings	100,000
Total assets	$  400,000	Total liabilities and equity	$  400,000
3. 2018 current ratio =	Current Assets	/ Current liabilities
	=$710/$335
	=2.11