Question

Calculate the following ratios from the attached income statement:

1. Inventory turnover ratio

2. Debt to asset ratio

3. Debt to equity ratio

4. Debt to EBITDA

5. Accounts Receivable Turnover Ratio

6. ROA

Hennes & Mauritz Income Statement and Balance Sheet (USD 000) Exhibit 14 1999/2000 3,009,190 1,487,747 1,521,443 1998/1999 3,280,953 49.4 % 1,547,329 50.6 % 1,733,624 Net Operating Revenues Cost Of Goods Sold Gross Margin Operating Expenses (Income) (Personnel, R&D, Depreciations and other operating expenses) Operating Prdits Other Incomes (Expenses) Financial Exp (Income) Pretax Income Income Tax Net Income 47.2% 52.8% 1,194,800 538,824 36.4% 16.4% 0.0 % -0.6 % 17.1% 5.9 % 11.2% 1,150,099 371,344 38.2% 12.3% 0.0% -0.8 % 13.1 % 4.8 % 23,379 394,723 -143,330 538,053 -21,012 559,835 192,729 367,106 17.9% 1,551,392 1,051,8977 533,913 439,595 78,389 499,495 489,950 9,545 1,670,343 1,297,848 803,812 424,624 69,412 372,495 363,589 8,906 Asset Current Assets Cash+ Investments 77.7% 67.8% 48.1% 34.4% 28.3% 5.1 % 32.2% 31.6% 25.4% Inventories Other Current Assets Non Current Assets Prop Plant & Equip Net Other Assets 4.2% 22.3% 21.8% 0.5% 0.6% Liabilities 1,670,400 378,471 104,824 273,647 1,551,422 299,723 91,433 208,290 22.7% 19.3% Current Liabilities 6.3% Accounts Payable (Short Term) Debts (Short Term) Other Short Term Liabilities Non Current Liabilities 5.9% 16.4% 0.0 % 4.8% 13.4% 0.0% 5.0 % 76,818 80,894 5,082 75,812 1,211,035 194,259 84.2% 1,016,776 0.3% Debts (Long Term) Other Long Term Liabilities Equity Common Stock & Surplus Retained Earnings Other Equity 4,140 72,678 1,174,881 0.3% 4.5% 725% 4.7% 75.7 % 16.0% 84.0% 185,840 989,041 15.8% 0.0 % 0.0 % Full time average employeer SquareMeters 20,680 579,805 17,652 Source: Hennes & Mauritz Report 1998/2000. 6 'Exchange rate: Exchange 1 US$ SEK 8.5 Date 30/11/2000 10.12 30/11/2001 25

Answer 1

1. Inventory Turnover Ratio

Inventory Turnover Ratio = Cost of Goods Sold/Average Inventory

Here, Average Inventory = (Opening Inventory + Closing Inventory)/2

= (439595000 + 424624000)/2

= 432109500

So, Inventory Turnover Ratio = COGS/Avg Inventory = 1487747000/432109500 = 3.42

NOTE: The values given in the Financial Statements are all in thousands, therefore we have to multiply each value by 1000.

2. Debt to Asset Ratio

Debt to Asset Ratio = Total Debt/Total Assets

Here, Total Debt = Short Term Debt + Long Term Debt

= 208290000 + 4140000

= 212430000

Total Assets = 1551392000

So, Debt to Asset Ratio = 212430000/1551392000

= 0.1369 or 13.69%

3. Debt to Equity Ratio

Debt to Equity Ratio = Total Debt / Equity

Total Debt = 212430000 (We had calculated it in the previous part of the solution)

Total Equity = 1174881000

So, Debt to Equity Ratio = 212430000/1174881000 = 0.1808 or 18.08%

4. Debt to EBITDA

Debt to EBITDA = Total Debt/EBITDA

Total Debt = 212430000 (already calculated in the question)

EBITDA = Earnings Before Interest Taxes and Depreciation & Ammortization

= EBIT + Depreciation & Ammortization

SInce the value of Depreciation & Ammortization has not been given in the question, we cannot calculate EBITDA.

Hence, we cannot calculate Debt/EBITDA Ratio

5. Accounts Receivable Turnover Ratio

Accounts Receivables Turnover Ratio = Sales/Average Accounts Receivable

Average Accounts Receivables = (Opening Accounts Receivables + Closing Accounts Receivables)/2

= (78389000 + 69412000)/2

= 73900500

NOTE: In the above formula, we have considered Other Current Assets as Accounts Receivables, because no explicit value of Receivables is given and values of other current assets like inventory have been given in the Balance Sheet.

Sales = 3009190000

Accounts Receivables Turnover Ratio = Sales/Average Accounts Receivables

= 3009190000/73900500

= 40.72

6. Return on Assets (RoA)

Return on Assets = Net Income/Average Total Assets

Net Income = 538053000

Average Total Assets = (Opening Total Assets + Closing Total Assets)/2

= (1551392000 + 1670343000)/2

= 1610867500

So, Return on Assets (RoA) = 538053000/1610867500 = 0.3340 or 33.40%