Question

1. You are evaluating the balance sheet for Goodman's Bees Corporation. From the balance sheet you find the following balances: cash and marketable securities = $500,000, accounts receivable = $1,000,000, inventory = $1,500,000, accrued wages and taxes = $510,000, accounts payable = $810,000, and notes payable = $610,000.

Calculate Goodman Bees' net working capital.

2.

Ramakrishnan, Inc. reported 2018 net income of $35 million and depreciation of $2,850,000. The top part of Ramakrishnan, Inc.’s 2018 and 2017 balance sheets is listed below (in millions of dollars).

	2018				2017				2018				2017
Current assets:								Current liabilities:
Cash and marketable securities	$	40			$	15		Accrued wages and taxes	$	30			$	24
Accounts receivable		85				81		Accounts payable		83				80
Inventory		157				122		Notes payable		80				75
Total	$	282			$	218		Total	$	193			$	179

Calculate the 2018 net cash flow from operating activities for Ramakrishnan, Inc.

3. Mr. Husker’s Tuxedos Corp. ended the year 2018 with an average collection period of 33 days. The firm’s credit sales for 2018 were

$56.0 million.

What is the year-end 2018 balance in accounts receivable for Mr. Husker’s Tuxedos?

4. You are thinking of investing in Nikki T's, Inc. You have only the following information on the firm at year-end 2018: net income is $180,000, total debt is $2.80 million, and debt ratio is 60 percent.

What is Nikki T's ROE for 2018?

Answer 1

1) Net working capital = Current assets - Current liabilties

Current assets = Cash + Accounts receivable + inventory = $500,000 + $1,000,000 + $1,500,000 = $3,000,000

Current liabilities = accrued wages and taxes + accounts payable + notes payable = $510,000 + $810,000 + $610,000 = $1,930,000

Net working capital = $3,000,000 - $1,930,000 = $1,070,000

2)

Net Income	$35,000,000
Add: Depreciation	$2,850,000
Add: Increase in current liabilities
Accrued wages and taxes (30 - 24)	$6,000,000
Accounts payable (83 - 80)	$3,000,000
Less: Increase in current assets
Accounts receivable (85 - 81)	$4,000,000
Inventory (157 - 122)	$35,000,000
Cash Flow from Operating Activities	$7,850,000

3) Average collection period = (Accounts receivable / Credit sales) x 365 days

or, 33 = (Accounts receivable / $56,000,000) x 365

or, Accounts receivable = (33 / 365) x $56,000,000 = $5,063,013.6984 or $5,063,013.70

4) Debt Ratio = total debt / Total assets

or, 60% = $2,800,000 / Total assets

or, Total assets = $2,800,000 / 60% = $4,666,666.66666

Shareholders' Equity = Total assets - Total debt = $4,666,666.66666 - $2,800,000 = $1,866,666.66666

Return on equity (ROE) = Net income / Shareholders' equity = $180,000 / $1,866,666.66666 = 0.09642857 or 9.642857% or 9.64%