Question

In: Finance

Income Statement Sales $5 million -COGS -4.2 million There are 50,000 shares of c.s. outstanding Gross Profits...

Income Statement

Sales $5 million

-COGS -4.2 million There are 50,000 shares of c.s. outstanding

Gross Profits 800,000

-Operating Expenses -350,000

Operating Profit 450,000

-Interest -125,000

EBT 325,000

-Taxes -97,500

EAT 227,500

Balance Sheet

Cash $100,000 Current liabilities $480,000

Acct. Rec. $300,000 Bonds $1.5 million

Inventory $800,000 Common stock $500,000

Fixed Assets $2 million Paid-in Capital $600,000

Total Assets $3.2 million Retained Earnings $120,000

Total Liabilities & Stockholders Equity $3.2 million

1. Based on the financial statements, calculate:

A. Current ratio _______________________________

B. Debt/equity ratio ______________________________

C. Times interest earned ___________________________

D. ROE _____________________________

E. Book value per share ______________________________

F. Inventory turnover______________________________

G. Net working capital___________________________

H. EPS____________________________________

Expert Solution

First 4 parts are being answered here:

A. Current ratio = Current assets / Current liabilities

Current assets = Cash + accounts receivable + inventory

Current assets = $100000 + $300000 + $800000 = $1200000

Current liabilities = $480000

Now, putting these values in the current ratio formula, we get,

Current ratio = $1200000 / $480000 = 2.5

B. Debt to equity ratio = Total liabilities / Shareholder's equity

Total liabilities = Bonds + Current liabilities = $1500000 + $480000 = $1980000

Shareholder's equity = Common stock + Paid in capital + Retained earnings

Shareholder's equity = $500000 + $600000 + $120000 = $1220000

Now, putting the values in the above debt to equity ratio,

Debt to equity ratio = $1980000 / $1220000 = 1.62

C. Formula for times interest earned ratio is:

Times interest earned ratio = Operating profit / Interest expense

Operating profit = $450000, Interest expense = $125000

Times interest earned ratio = $450000 / $125000 = 3.6

D. Return on equity (ROE) = Net income / Stockholder's equity * 100

Net income = EAT = $227500

Shareholder's equity = Common stock + Paid in capital + Retained earnings

Shareholder's equity = $500000 + $600000 + $120000 = $1220000

Now, putting these values in the above ROE formula, we get,

Return on equity (ROE) = $227500 / $1220000 * 100 = 18.65%

jeff jeffy answered 1 year ago

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