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In: Finance

Balance Sheet Cash&MS- 30,000 Accruals- 20,000 Receivables- 70,000 Accounts Payable- 60,000 Inventories- 120,000 Notes Payable- 80,000...

Balance Sheet

Cash&MS- 30,000 Accruals- 20,000

Receivables- 70,000 Accounts Payable- 60,000

Inventories- 120,000 Notes Payable- 80,000

Fixed Assets- 480,000 L-T Liabilities- 140,000

Total Assets= 700,000 Common Equity- 400,000

Annual Sales- 1,400,000 Cost of Goods Sold- 960,000

Net Income- 63,000 Number of Shares Outstanding- 30,000

What is the current ratio, debt ratio, total asset turnover ratio of the firm?

What is the days sales outstanding (DSO) of the firm? (Use a 360-day year.)

What is the profit margin of the firm?

What is the return on equity?

Expert Solution

Answer to Part 1:

Current Ratio = Current Assets / Current Liabilities
Current Assets = Cash & MS + Receivable + Inventories
Current Assets = $30,000 + $70,000 + $120,000 = $220,000

Current Liabilities = Accruals + Accounts Payable
Current Liabilities = $20,000 + $60,000 = $80,000

Current Ratio = 220,000 / 80,000
Current Ratio = 2.75 times

Debt Ratio = Total Debts / Total Assets
Total Debt = Accruals + Accounts Payable + Notes Payable + L-T Liabilities
Total Debt = $20,000 + $60,000 + $80,000 + $140,000
Total Debt = $300,000

Debt Ratio = 300,000 / 700,000
Debt Ratio = 0.43 times

Total Assets Turnover Ratio = Net Sales / Average Total Assets
Total Assets Turnover Ratio = 1,400,000 / 700,000
Total Assets Turnover Ratio = 2.0

Answer to Part 2.

Days Sales Outstanding = Accounts Receivable / Net Credit Sales * 360
Days Sales Outstanding = 70,000 / 1,400,000 * 360
Days Sales Outstanding = 18 days

Answer to Part 3.

Profit Margin = Net Income / Net Sales * 100
Profit Margin = 63,000 / 1,400,000 * 100
Profit Margin = 4.50%

Answer to Part 4.

Return on Equity = Net Income / Total Stockholders' Equity
Return on Equity = 63,000 / 400,000
Return on Equity = 0.1575 or 15.75%

jeff jeffy answered 2 years ago

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