Question

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
EBIT	7,400,000		Prepaid Expenses	5,000,000
Interest	2,000,000		Plant & Equipment	30,000,000
	5,400,000
Taxes (40%)	2,160,000		Total Assets	85,000,000
	3,240,000
Common Stock Div.	600,000		Liabilities and Equity:
	$2,640,000		Accounts Payable	$20,000,000
			Notes Payable	5,000,000
Shares outstanding of common stock = 1,000,000			Accrued Expenses	5,000,000
Market price of common stock = $18			Bonds Payable	25,000,000
			Common Stock	5,000,000
			Capital in Excess of Par	10,000,000
			Retained Earnings	15,000,000
Please answer the following questions questions: 1. The Total Debt to Total Asset ratio is: 2.         Return on Assets ratio is: 3.         The Total Asset Turnover ratio is: 4.       The Operating Profit Margin is: 5.       The Average Collection Period (365 day year) is: 6.       The Market to Book ratio is: 7.       The Debt to Equity ratio is: 8.       The Inventory Turnover ratio is: 9.       The Return on Equity is:			Total Liabilities and Equity 85,000,000

Answer 1

1.

Required ratio = (Total debt / Total asset) × 100

                        = {(Accounts payable + Notes payable + Accrued expenses + Bonds payable) / 85,000,000} × 100

                        = {(20,000,000 + 5,000,000 + 5,000,000 + 25,000,000) / 85,000,000} × 100

                        = (55,000,000 / 85,000,000) × 100

                        = 64.7058…. %

                        = 64.71% [rounded to 2 decimal places]

2.

Required ratio = (Net income / Total asset) × 100

                        = (3,240,000 / 85,000,000) × 100

                        = 3.81176…%

                        = 3.81% [rounded to 2 decimal places]

3.

Required ratio = (Net revenues or sales / Average total asset) × 100

                        = (20,000,000 / 85,000,000) × 100

                        = 23.52941… %

                        = 23.53%

4.

Required ratio = (EBIT / Net revenues or sales) × 100

                        = (7,400,000 / 20,000,000) × 100

                        = 37%

5.

Required ratio = (Number of days in a year × Accounts receivable) / Credit sales

                        = (365 × 2,500,000) / 20,000,000

                        = 45.625 days