Question

Go.co Company has the following financial information for its first year in business:

cash of $242, accounts receivable of $850, inventory of $820, net fixed assets of $3,408, accounts payable of $700, short-term notes payable of $740, long-term liabilities of $1,100, common stock of $1,160, retained earnings of $1,620, net sales of $2,768, cost of goods sold of $1,210, depreciation of $360, interest expense of $160, taxes of $312, addition to retained earnings of $508, and dividends paid of $218.

Based on the above information, answer the following questions:

Note: You need to show your calculations.

                  1. What is the return on equity?

                                   

                  2. What is the return on total assets?

                                   

                  3. What is the net profit margin?

                                   

                  4. What is the operating profit margin?

                                   

                  5. What is the sales to total asset ratio?

                                                                       

                  6. What is the current ratio?                                    

                  7. What is the total-debt-total-asset ratio?

                                   

                  8. What is the interest coverage ratio?

                                   

             9. What will be the return on Equity if the Net sales increased to $3000? Interpret your results

Answer 1

1. ROE = Net profit / Equity

= dividend + retained earnings / equity + retained earnings

= 218 + 508 / 1,160 + 1,620

= 726 / 2,780

= 26.12%

2. ROA = Net profit / Total assets

= dividend + retained earnings / cash + account receivable + inventory + net fixed assets

= 218 + 508 / 242 + 850 + 820 + 3,408

= 726 / 5,320

= 13.65%

3. Net profit margin= Net profit / sales

= 726 / 2,768

= 26.23%

4. Operating profit margin= operating profit / Revenue

= Sales - cost of goods sold - depreciation / Sales

= 2,768 - 1,210 - 360 / 2,768

= 1,198/ 2,768

= 43.28%

5) Sales to total assets= sales / total assets

= 2,768 / 5,320

= 52.03%

6) Current ratio= Current asset / current liabilities

= cash + account receivable + inventory / account payable + note payable

= 242 + 850 + 820 / 700 + 740

= 1,912 / 1,440

= 1.33 times

7) Total debt to total assets = Total debt/ total asset

= account payable + notes payable + long term debt / total asset

= 700 + 740 + 1,100 / 5,320

= 2,540 / 5,320

= 47.74