Question

a. Explain why P/E ratio and EPS are used in determining health of a stock? Is it good to have a low EPS ratio? Why or why not? (8) A skeleton of Heuristic Solution's balance sheet appears as follows (amounts in thousands): A B С D 1 Balance Sheet 2 3 4 5 $ 253 (a) 555 (b) (c) Total current liabilities Long-term debt Other long-term liabilities $ 1.164 (e) 826 Cash Receivables Inventories Prepaid expenses Total current assets Property, plant, and equipment, net Other assets Total assets 6 7 185 2.846 Common shares Retained earnings Total liabilities and shareholders' equity 8 9 1.150 $6315 I $ (D 10 on's balance sheet: Use the following ratio data to complete Heuristic Solu a. Debt ratio is 0.52. b. Current ratio is 1.20. c. Acid-test ratio is 0.70 13 Bi 3/

Answer 1

$1,164 $1,294 $826 Cash Receivables Inventories Prepaid expenses Total current assets Property, plant and equpment, net Other assets Total assets Balance Sheet $253 Total current liabilities $562 Long-term debt $555 Other long-term liabilities $27 $1,397 Common shares $3,768 Retained earnings $1,150 $6,315 Total liabilities and shareholders' equity $185 $2,846 $6,315 Workings: $6,315 Quick assets = Total current liabilities / Acid-test ratio (Where, Quick assets = Cash + Receivables) Total assets Less: Total current assets Other assets Property, plant & equip. net $1,397 [As calculated] $1,150 $3,768 Total current liabilities Acid-test ratio Quick assets Less: Cash Receivables $1,164 0.70 $815 ($1164 x 0.70] $253 $562

Total current assets = Total current liabilities / Current ratio Total liabilities = Total assets x Debt ratio $1,164 1.20 $1,397 ($1164 x 1.20] $6,315 0.52 $3,284 ($6315 x 0.52] Total current liabilities Current ratio Total current assets Less: Cash Receivables Inventories Prepaid expenses Total assets Debt ratio Total liabilities Less: Total current liabilities Other long-term liabilities Long-term debt $253 $562 [As calculated] $555 $27 $1,164 $826 $1,294