A company has got $500 in cash and cash equivalents, $300 in inventory and $200 in...

A company has got $500 in cash and cash equivalents, $300 in inventory and $200 in account receivables. The firm has long term assets of $500. The firm has accounts payables of $200. All other current liabilities total $400. The firm had sales of $10000, EBIT of $5000, interest expenses of $2000 and net income of $800. Compute the following ratios:

Current ratio
DSO
TIE
profit margin
Total asset turnover

Solutions

Expert Solution

1. Calculation of Current Ratio:

Where,

Current Assets = Accounts receivables + Inventory + Cash and cash equivalents = 200 + 300 + 500 = $ 1000

Current liabilities = accounts payables + other current liabilities = 200 + 400 = $ 600

Current Ratio = 1.667

2. Calculation of DSO (Days Sales Outstanding):

DSO = 7.3 Days

3. Calculation of TIE (Times Interest Earned) :

TIE = 2.5

4. Calculation of profit margin :

Profit Margin = 8 %

5. Calculation of Total asset turnover:

Where,

Total Assets = Long term assets + Current Assets = 500 + 1000 = $ 1500

Total asset turnover = 6.667

jeff jeffy answered 2 years ago

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