Question

Long-term debt ratio Times interest earned Current ratio Quick ratio Cash ratio Inventory turnover Average collection period 0.6 5.0 73 days Use the above information from the tables to work out the following missing entries, and then calculate the company's return on equity. Note: Turnover and the average collection period are calculated using start-of-year, not average, values. (Enter your answers in millions. Round intermediate calculations and final answers to 2 decimal places.) INCOME STATEMENT (Figures in $ millions) Net sales Cost of goods sold Selling, general, and administrative expenses Depreciation Earnings before interest and taxes (EBIT) Interest expense Income before tax Tax (35% of income before tax) Net income 13.00 23.00 BALANCE SHEET (Figures in $ millions) This Year Last Year Assets 117 Cash and marketable securities Accounts receivable Inventories Total current assets Net property, plant, and equipment Total assets Liabilities and shareholders' equity Accounts payable Notes payable Total current liabilities Long-term debt Shareholders' equity Total liabilities and shareholders' equity | $ $ 30.00 35.00 $ 135.00 $

Answer 1

INCOME STATEMENT
(Figures in $ millions)
Net sales	185.00
Cost of goods sold	145.00
Selling, general and admin expenses	13.00
Depreciation	23.00
Earnings Before Interest & Taxes (EBIT)	4.00
Interest expenses	0.50
Earnings Before Taxes (EBT)	3.50
Tax at 35% (On EBT)	1.23
Net Income	2.28
BALANCE SHEET
(Figures in $ millions)
	This year	Last year
Assets
Cash and marketable securities	39.00	23.00
Accounts receivables	26.00	37.00
Inventories	19.50	29.00
Total current assets	84.50	89.00
Net property, plant & equipment	50.50	28.00
Total Assets	135.00	117.00
Liabilities & shareholders equity
Accounts payable	30.00	25.00
Notes payable	35.00	40.00
Total current liabilities	65.00	65.00
Long term Debt	54.00	23.00
Shareholders' equity	16.00	29.00
Total Liabilities & shareholders equity	135.00	117.00

Workings:

1) Inventory turnover ratio = Cost of goods sold/ Average inventory

                                                5 = Cost of goods sold/ 29

                 Cost of goods sold = 29 * 5

                                                    = 145

2) Current ratio = Current assets/ Current liabilities

                      1.3 = Current assets/ 65

    Current assets = 65 * 1.3

                              = 84.5

3) Net property, plant & equipment = Total assets – current assets

                               = 135 - 84.5

                               = 50.5

4) Quick Ratio = Current assets – inventories / Current liabilities

            1 = 84.5 – inventories / 65

            65 = 84.5 – inventories

         Inventories = 84.5 – 65

                     = 19.5

5) Long term Debt ratio = Long term Debt / Total assets

            0.4 = Long term Debt / 135

    Long term Debt = 135 * 0.4

                         = 54

6) Shareholders equity = Total Liabilities & shareholders equity - Total current           liabilities - Long term Debt

                                 = 135 – 65 – 54

                                = 16

7) Cash ratio = Cash and marketable securities / current liabilities

         0.6 = Cash and marketable securities / 65

    Cash and marketable securities = 65 * 0.6

                              = 39

8) Accounts receivables = Total current assets – Inventories - Cash and marketable securities

                                     = 84.5 – 19.5 – 39

                                     = 26

9) Average collection period = Accounts receivables / Net sales * 365

       73 = 37 / Net sales * 365

      Net sales = 37 * 365 / 73

                        = 185

10) Interst earned ratio = Earnings Before Interest & Taxes (EBIT) / Interest expenses

                           8 = 4 / Interest expenses

    Interest expenses = 4 / 8

                                 = 0.5

Note: Inventory and Accounts receivable for last year IS Taken for calculating ratios rather than average ( Answer varry when average is taken )