Question

Examine the financial statements below. Use this information to answer questions 1-7. Note: All figures are in millions of dollars.

The XXX Corporation: Balance Sheet, 2018

Cash & marketable securities                $200                Accounts payable                        100

Accounts receivable                              150                Notes payable                         100

Inventories                                           250                Total current liabilities               $200

    Total current assets                              $600              Long-term debt                           400

                                                                                    Total liabilities                          $600

Fixed assets                                          900

                                                                                    Common stock                       50

                                                                                    Retained earnings                     850

                                                                                        Total equity                          $900

Total assets                                            $1,500 Total liabilities and equity                     $1,500

The XXX Corporation: Income Statement, 2018

Sales revenue                                       $1,200

Cost of goods sold                                     700

Selling expenses                                        200

Depreciation                                            150

Earnings before interest and taxes             $150

Interest paid                                               50

Taxable income                                       $100

Taxes (40%)                                                40

Net income                                                  $60

1. The quick ratio is:

0.57     B. 1.75     C. 3.0    D. 1.25     E. 0.80

2. The equity multiplier is:

1.67    B. 0.60     C. 0.40     D. 1.50     E. 0.67

3. The net profit margin is:

A. 0.05     B. 0.15     C. 0.60     D. 0.50     E. 0.12

4. The operating cash flow for 2018 was ____ million.

A. +$60     B. -$60     C. +$260     D. +$160     E. +$100

5. The current market price of XXX is $30 per share.   The price earnings ratio is 25. The number of shares outstanding is _______ million.

1. 10     B. 20     C. 30     D. 40     E. 50

6. The total asset turnover ratio is:

1. 0.8     B. 1.25     C. 2.0     D. 4.0     E. 6.0

7. If XXX were to acquire $50 million in inventory with a $50 million increase in accounts payable (other things equal), the current ratio would _____, and the quick ratio would _____.

A. increase, increase

B. not change, decrease

C. not change, not change    

D. decrease, increase

E.   decrease, decrease

Answer 1

1. Quick ratio=(Cash and marktable securities+accounts receivables)/Current liabilities=(200+150)/200=350/200=1.75

Option B is correct

2. Equity multiplier=Total assets/Total equity=1500/900=1.67

Option A is correct

3. Net profit margin=Net Income/Sales=60/1200=0.05 (5%)

Option A is correct

4. We need to have 2017 balancesheet to find the operating cashflow. I am writing formula, if you have please substitue this.

Operating cashflow for 2018=Net Income+depreciation+/-changes in working capital

Changes in working capital=2017 accounts receiavbles-2018 accounts receivables+2017 inventory-2018 inventory+2018 accounts payables-2017 accounts payables

5. P/E=25

(number of shares*price)/Net income=25

Number of shares=25*Net income/Price=25*60/30=50

Option E is correct

6. Total asset turnover ratio=Sales/Total assets=1200/1500=0.8

Option A is correct

7. Option B is correct

Current ratio will consider inventory while arriving at the ratio. Current ratio=current assets/current liabilities

50 increase on both numarator and denominator will not change anything.

Quick ratio will not consider inventory. Increase of denominatior by 50 will decrease the ratio