Question
In: Finance
Problem 4-7 Financial Ratios (LO3) Here are simplified financial statements for Phone Corporation in a recent...
Problem 4-7 Financial Ratios (LO3)
Here are simplified financial statements for Phone Corporation in a recent year:
| INCOME STATEMENT | ||
| (Figures in $ millions) | ||
| Net sales | $ | 12,600 |
| Cost of goods sold | 3,760 | |
| Other expenses | 4,127 | |
| Depreciation | 2,338 | |
| Earnings before interest and taxes (EBIT) | $ | 2,375 |
| Interest expense | 655 | |
| Income before tax | $ | 1,720 |
| Taxes (at 35%) | 602 | |
| Net income | $ | 1,118 |
| Dividends | $ | 816 |
| BALANCE SHEET | |||||||
| (Figures in $ millions) | |||||||
| End of Year | Start of Year | ||||||
| Assets | |||||||
| Cash and marketable securities | $ | 83 | $ | 152 | |||
| Receivables | 2,082 | 2,370 | |||||
| Inventories | 157 | 208 | |||||
| Other current assets | 837 | 902 | |||||
| Total current assets | $ | 3,159 | $ | 3,632 | |||
| Net property, plant, and equipment | 19,913 | 19,855 | |||||
| Other long-term assets | 4,156 | 3,710 | |||||
| Total assets | $ | 27,228 | $ | 27,197 | |||
| Liabilities and shareholders’ equity | |||||||
| Payables | $ | 2,504 | $ | 2,980 | |||
| Short-term debt | 1,389 | 1,543 | |||||
| Other current liabilities | 781 | 757 | |||||
| Total current liabilities | $ | 4,674 | $ | 5,280 | |||
| Long-term debt and leases | 8,512 | 7,907 | |||||
| Other long-term liabilities | 6,118 | 6,089 | |||||
| Shareholders’ equity | 7,924 | 7,921 | |||||
| Total liabilities and shareholders’ equity | $ | 27,228 | $ | 27,197 | |||
Calculate the following financial ratios for Phone Corporation: (Use 365 days in a year. Do not round intermediate calculations. Round your final answers to 2 decimal places.)
Inventory turnover
Average collection period
Operating profit margin
Long term debt ratio
Total debt ratio
Times interest earned
Cash coverage ratio
Current ratio
Quick ratio
Solutions
Expert Solution
a. Inventory turnover = Cost of good sold / inventory
= 3,760 / 208
= 18.07
b. Average collection period= 365 * Receivable / Net sales
= 365 * 2,370 / 12,600
= 68.65 days
c. Operating profit margin = Operating income / net sales
= 1,118 / 12,600
= 0.088 or 8.8%
d. Long term debt ratio = Long term debt / (Long term debt + Equity)
= 8,512 / (8,512 + 7,924)
= 8,512 / 16,436
= 0.51
e. Total debt ratio = Total debt / (Long term debt + Equity)
= Total debt = Current liabilities + long term Debt and lease + other long term liability
= 4,674 + 8,512 + 6,118
= 19,304
Total debt ratio = 19,304 / (8,512 + 7,924)
= 19,304 / 16,436
= 1.17
f. Times interest earned = EBIT / interest
= 2,375 / 655
= 3.62
g. Cash coverage ratio = (EBIT + Depreciation) / Interest
= (2,375 + 2,338) / 655
= 4,713 / 655
= 7.19
h. Current ratio = Current assets / Current liabilities
= 3,159 / 4,674
= 0.67
i. Quick ratio = (Total current assets - Inventory) / Current liabilities
= (3,159 - 157) / 4,674
= 3,002 / 4,674
= 0.64
jeff jeffy answered 2 years agoRelated Solutions
Here are simplified financial statements for Phone Corporation in a recent year: INCOME STATEMENT (Figures in...
Here are simplified financial statements for Phone Corporation
in a recent year:
INCOME
STATEMENT
(Figures in $
millions)
Net sales
$
12,700
Cost of goods sold
3,810
Other expenses
4,112
Depreciation
2,368
Earnings before interest and taxes (EBIT)
$
2,410
Interest expense
660
Income before tax
$
1,750
Taxes (at 30%)
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Net income
$
1,225
Dividends
$
826
BALANCE SHEET
(Figures in $ millions)
End of Year
Start of Year
Assets
Cash and marketable securities
$
84
$...
Here are simplified financial statements for Phone Corporation in a recent year: INCOME STATEMENT (Figures in...
Here are simplified financial statements for Phone Corporation
in a recent year:
INCOME
STATEMENT
(Figures in $
millions)
Net sales
$
13,900
Cost of goods sold
4,460
Other expenses
4,197
Depreciation
2,758
Earnings before interest and taxes (EBIT)
$
2,485
Interest expense
725
Income before tax
$
1,760
Taxes (at 30%)
528
Net income
$
1,232
Dividends
$
936
BALANCE SHEET
(Figures in $ millions)
End of Year
Start of Year
Assets
Cash and marketable securities
$
97
$
166...
Here are simplified financial statements for Phone Corporation in a recent year: INCOME STATEMENT (Figures in...
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in a recent year: INCOME STATEMENT (Figures in $ millions) Net
sales $ 13,000 Cost of goods sold 3,960 Other expenses 4,037
Depreciation 2,458 Earnings before interest and taxes (EBIT) $
2,545 Interest expense 675 Income before tax $ 1,870 Taxes (at 30%)
561 Net income $ 1,309 Dividends $ 856 BALANCE SHEET (Figures in $
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Here are simplified financial statements for Phone Corporation in a recent year: INCOME STATEMENT (Figures...
Here are simplified financial statements for Phone Corporation
in a recent year:
INCOME STATEMENT
(Figures in $ millions)
Net sales
$ 13,600
Cost of goods sold
4,310
Other expenses
4,162
Depreciation
2,668
Earnings before interest and taxes (EBIT)
$ 2,460
Interest expense
710
Income before tax
$ 1,750
Taxes (at 30%)
525
Net income
$ 1,225
Dividends
$ 906
BALANCE SHEET
(Figures in $ millions)
End of Year
Start of Year
Assets
Cash and marketable
securities
$
94...
Here are simplified financial statements for Phone Corporation in a recent year: INCOME STATEMENT (Figures in...
Here are simplified financial statements for Phone Corporation
in a recent year:
INCOME
STATEMENT
(Figures in $
millions)
Net sales
$
12,400
Cost of goods sold
3,660
Other expenses
4,137
Depreciation
2,278
Earnings before interest and taxes (EBIT)
$
2,325
Interest expense
645
Income before tax
$
1,680
Taxes (at 30%)
504
Net income
$
1,176
Dividends
$
796
BALANCE SHEET
(Figures in $ millions)
End of Year
Start of Year
Assets
Cash and marketable securities
$
81
$...
Here are simplified financial statements for Phone Corporation in a recent year: INCOME STATEMENT (Figures...
Here are simplified financial statements for Phone Corporation
in a recent year:
INCOME STATEMENT
(Figures in $ millions)
Net sales
$ 13,600
Cost of goods sold
4,310
Other expenses
4,162
Depreciation
2,668
Earnings before interest and taxes (EBIT)
$ 2,460
Interest expense
710
Income before tax
$ 1,750
Taxes (at 30%)
525
Net income
$ 1,225
Dividends
$ 906
BALANCE SHEET
(Figures in $ millions)
End of Year
Start of Year
Assets
Cash and marketable securities
$
94...
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financial statements for Phone Corporation in a recent year:
INCOME STATEMENT
(Figures in $ millions)
Net sales
$
13,800
Cost of goods
sold
4,410
Other expenses
4,182
Depreciation
2,728
Earnings before
interest and taxes (EBIT)
$
2,480
Interest
expense
720
Income before
tax
$
1,760
Taxes (at 35%)
616
Net income
$
1,144
Dividends
$
926
BALANCE SHEET
(Figures in $
millions)
End of Year
Start of Year
Assets
Cash and marketable securities
$
96
$...
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Balance Sheet
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$
20,000
Current assets
$
11,920
Debt
$
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Costs
13,700
Fixed assets
31,050
Equity
26,610
Taxable income
$
6,300
Total
$
42,970
Total
$
42,970
Taxes (22%)
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Using the financial statements for the Snider Corporation,
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SNIDER CORPORATION
Balance Sheet
December 31, 20X1
Assets
Current assets:
Cash
$
53,000
Marketable securities
26,400
Accounts receivable (net)
235,000
Inventory
257,000
Total current assets
$
571,400
Investments
65,100
Plant and equipment.
$699,000
Less: Accumulated depreciation
222,000
Net plant and equipment
477,000
Total assets
$
1,113,500
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The most recent financial statements for Cardinal, Inc., are
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Balance Sheet
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$
31,000
Assets
$
73,200
Debt
$
36,700
Costs
18,400
Equity
36,500
Taxable income
$
12,600
Total
$
73,200
Total
$
73,200
Taxes (22%)
2,772
Net income
$
9,828
Assets and costs are proportional to sales. Debt and equity are
not. A dividend of $3,700 was paid, and the company wishes to
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