Question

Table 1

                               Income Statement                                                            Balance Sheet

Sales                                   20,000,000                        Assets:

Cost of Goods Sold               8,000,000                         Cash $ 5,000,000

                                             12,000,000                        Marketable Securities 12,500,000

Selling and Administrative 1,600,000                         Accounts Receivable, net 2,500,000

Depreciation                          3,000,000                          Inventory                              30,000,000

                                              7,400,000                          Prepaid Expenses 5,000,000

Interest                                  2.000,000                          Plant& Equipment 30,000,000

                                              5,400,000                          Total Assets                         85,000,000

Taxes (40%)                          2,160,000                          

                                              3,240,000                          

Common Stock Div. 600,000                          Liabilities and Equity:

                                              $2,640,000                          Accounts Payable               $20,000,000

                                                                                               Notes Payable                    5,000,000

                                                                                               Accrued Expenses              5,000,000

                                                                                               Bonds                               25,000,000

                                                                                               Common Stock                    5,000,000

                                                                                               Capital in Excess of Par    10,000,000

                                                                                               Retained Earnings              15,000,000

Total Liabilities and

                                                                                               Equity                                   $85,000,000

Shares outstanding of common stock = 1,000,000

Market price of common stock = $18.

Use Table 1 for the following unanswered questions (1.11-1.15).

1-1.    The Current Ratio is: 1.83: 1

1-2.     The Net Profit margin is:16.20%

1-3.     The Quick Ratio is:0.67: 1

1-4    The Times Interest Earned ratio is:3.7 times

1-5.     The Earnings Per Share is:$3.24

1-6.     The Gross Profit Margin is:

1-7.     The Total Debt to Total Asset ratio is:

1-8.     Return on Assets ratio is:

1-9.     The Total Asset Turnover ratio is:

1-10.   The Operating Profit Margin is:

1-11.   The Average Collection Period (365 day year) is:

1-12.   The Market to Book ratio is:

1-13.   The Debt to Equity ratio is:

1-14.   The Inventory Turnover ratio is:

1-15.   The Return on Equity is:

Answer 1

The Gross Profit Margin = (Sales - Cost of goods Sold) / Sales X 100 = (20,000,000 - 8,000,000) / 20,000,000X 100

= 60%,

Total Debt to Total Asset Ratio = Total Debt / Total Asset ,

Total Debt = Accounts Payable + Notes Payable + Accrued Expenses + Bonds,

= $20,000,000 + 5,000,000+ 5,000,000 + 25,000,000,

= $55,000,000,

Total Assets = 85,000,000

Total Debt to Total Asset Ratio = $55,000,000, / 85,000,000,

= 0.647058823529412 rounded = 0.65

Return on Asset Ratio = EBIT / Asset X 100,

= EBIT is given in Question = 7,400,000 / 85,000,000 x 100= 8.70588235294118%,

rounded to 2 decimal places = 8.01%.

Total Asset Turnover ratio = Sales / Total Asset = 20,000,000 / 85,000,000 = 0.235294117647059, rounded to 2 decimal = 0.24,

Operating Profit Margin = Operating profit before tax / sales X 100

Operating Profit = EBIT = 7,400,000

Operating Profit Margin =  7,400,000 / 20,000,000 X 100 = 37%,

Average collection period = Debtors or Accounts receivable / credit sales X 365,

Here it is assumed that all sales are credit sales ,

=2,500,000 / 20,000,000 X 365,

= 45.625 days,

Market to Book ratio = Market value / Book Value,

Book value per share = Networth available to Equity / number of shares,

Networth available to Equity =

Common Stock 5,000,000

Capital in Excess of Par 10,000,000

Retained Earnings 15,000,000

Networth available to Equity = 30,000,000

Book value per share = 30,000,000 / 1,000,000 = 30 per share

Market to Book ratio = 18/30 =0.60

rounded = 0.60

Debt to Equity ratio = Longterm debt / Equity,

Longterm debt = Bond = 25,000,000,

Equity = 30,000,000,

Debt to Equity ratio = 25,000,000/30,000,000,

= 0.83333333333

Inventory Turnover ratio = Cost of goods sold / Inventory,

= Cost of Goods Sold is 8,000,000,

Inventory is 30,000,000

Inventory Turnover ratio = 8,000,000 / 30,000,000, = 0.26666666667,

Another computation is also there= sales / inventory = 20,000,000 / 30,000,000 = 0.6666666666667

Return on Equity = Profit after tax / Equity X 100

Profit after tax = 3,240,000

Equity = 30,000,000,

Return on Equity (ROE) = 3,240,000 / 30,000,000X 100 = 10.8%,

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Thank you,…