Question

For questions 22 – 25, utilize exhibit 4-1 below.

Exhibit 4.1
The balance sheet and income statement shown below are for Koski Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.

Balance Sheet (Millions of $)
Assets		2016
Cash and securities		$2,145
Accounts receivable		8,970
Inventories		12,480
Total current assets		$23,595
Net plant and equipment		$15,405
Total assets		$39,000
Liabilities and Equity
Accounts payable		$7,410
Accruals		4,290
Notes payable		5,460
Total current liabilities		$17,160
Long-term bonds		$7,800
Total liabilities		$24,960
Common stock		$5,460
Retained earnings		8,580
Total common equity		$14,040
Total liabilities and equity		$39,000
Income Statement (Millions of $)		2016
Net sales		$58,500
Operating costs except depreciation		54,698
Depreciation		1,024
Earnings before interest and taxes (EBIT)		$2,779
Less interest		829
Earnings before taxes (EBT)		$1,950
Taxes		683
Net income		$1,268
Other data:
Shares outstanding (millions)		500.00
Common dividends (millions of $)		$443.63
Int rate on notes payable & L-T bonds		6.25%
Federal plus state income tax rate		35%
Year-end stock price		$30.42

22. Refer to Exhibit 4.1. What is the firm's quick ratio?

23. Refer to Exhibit 4.1. What is the firm's days sales outstanding? Assume a 365-day year for this calculation.

24. Refer to Exhibit 4.1. What is the firm's operating margin

25. Refer to Exhibit 4.1. What is the firm's P/E ratio?

Answer 1

22. Quick ratio is computed as shown below:

= (Total current assets - Inventories) / current liabilities

= ($ 23,595 million - $ 12,480 million) / $ 17,160 million

= $ 11,115 million / $ 17,160 million

= 0.65 Approximately

23. Days sales outstanding is computed as follows:

= (Accounts Receivable / Net Sales) x 365 days

=($ 8,970 million / $ 58,500 million) x 365 days

= 55.97 days Approximately

24. Operating margin is computed as follows:

= Earnings before interest and taxes / Net Sales

= $ 2,779 million / $ 58,500 million

= 4.75% Approximately

25. PE ratio is computed as follows:

= Stock price / Earnings per share

Earnings per share is computed as follows:

= Net Income / Number of shares outstanding

= $ 1,268 million / 500 million

= $ 2.536

So, the PE ratio will be as follows:

= $ 30.42 / $ 2.536

= 11.9953 Approximately

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