Question

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			$	163
Receivables			2,632				2,590
Inventories			212				263
Other current assets			892				957
Total current assets		$	3,830			$	3,973
Net property, plant, and equipment			20,023				19,965
Other long-term assets			4,266				3,820
Total assets		$	28,119			$	27,758
Liabilities and shareholders’ equity
Payables		$	2,614			$	3,090
Short-term debt			1,444				1,598
Other current liabilities			836				812
Total current liabilities		$	4,894			$	5,500
Long-term debt and leases			5,773				5,938
Other long-term liabilities			6,228				6,199
Shareholders’ equity			11,224				10,121
Total liabilities and shareholders’ equity		$	28,119			$	27,758

  

Calculate the following financial ratios for Phone Corporation: (Use 365 days in a year. Do not round intermediate calculations. Round your percentage answers "Return on equity", "Return on assets", Return on capital" and "Operating profit margin" to 2 decimal places and the rest to 2 decimal places.)

  

a.	Return on equity (Use average equity.)		%
b.	Return on assets (Use after-tax operating income and average assets.)		%
c.	Return on capital (Use after-tax operating income and average capital.)		%
d.	Days in inventory (Use beginning inventory.)		days
e.	Inventory turnover (Use beginning inventory.)
f.	Average collection period (Use beginning receivables.)		days
g.	Operating profit margin (Use after-tax operating income.)		%
h.	Long-term debt ratio (Use end of year values.)
i.	Total debt ratio (Use end of year values.)
j.	Times interest earned
k.	Cash coverage ratio
l.	Current ratio (Use end of year values.)
m.	Quick ratio (Use end of year values.)

Answer 1

1-	return on equity	net income/average of total equity	1225/10672.5	11.48%
	average of equity	(11224+10121)/2	10672.5
2-	return on assets	after tax operating profit/average of total aseets	1722/27938.5	6.16%
	after tax operating income	2460*(1-.3)	1722
	average of total assets	(28119+27758)/2	27938.5
3-	return on capital	after tax operating profit/average of capital	1722/22741.5	7.57%
	after tax operating income	2460*(1-.3)	1722
	average of capital	(23225+22258)/2	22741.5
	capital in year of year	(total of equity+long term debt+other long term liabilities)	11224+6228+5773	23225
	capital in beginning of year	(total of equity+long term debt+other long term liabilities)	10121+6199+5938	22258
4-	Days in inventory	(365*beginning balance of inventory)/cost of goods sold	(365*263)/4310	22.27
5-	Inventory turnover	cost of goods sold/beginning inventory	4310/263	16.39
6-	Average collection period	(365*beginning balance of accounts receivables)/sales	(365*2590)/13600	69.51
7-	operating profit margin	after tax operating profit/sales	1722/13600	12.66%
	after tax operating income	2460*(1-.3)	1722
8-	long term debt ratio	total of long term debt/total of assets	5773/28119	20.53%
9-	total debt ratio	total of liabilities/total of assets	(4894+6228+5773)/28119	60.08%
10-	Times interest earned	operating profit/interest	2460/710	3.46
11-	cash coverage ratio	cash/total of current liabilities	94/4894	0.02
12-	current ratio	total of current assets/total of current liabilities	3830/4894	0.78
13-	quick ratio	(total of current assets-inventory)/total of current liabilities	(3830-212)/4894	0.74