Question

                                          Here are Simplified statement for phone corporation in a recent year

                                                                           Income statement

                                                                           (Figure in $ millions)

Net sales- 12,200

cost of goods sold- 3,560

other expenses 4,037

depreciation- 2,218

earnings before interest and taxes EBIT- 2,385

interest expense -635

interest before tax-1,750

taxes (at 30%)-525

net income- 1,225

dividends-746

                                              Balance sheet

                                           (figures in Millions)

                                                                                                 end of year              start of year

Assets

cash and marketable securities                                                 79                            148

receivables                                                                                1,882                        2,290

inventories                                                                                 137                          188

other current assets                                                                   817                          882

total current assets                                                                    2,915                       3,508

net property,plant and equipment                                              19,873                     19,815

other long term assets                                                               4,116                          3,670

total assets                                                                                 26,904                       26,993

Liabilities and shareholders equity

payables                                                                                     2,464                        2,940

short term debt                                                                            1,369                      1523

other current liabilities                                                                 761                         737

total current liabilities                                                                  4,594                     5,200

long term debt and leases                                                           9,508                    8,623

other long term liabilities                                                              6,078                     6,049

shareholders equity                                                                      6,724                     7,121

total liabilities and shareholders equity                                         26,904                  26,993

Calculate the following financial ratios for phone corporation (use 365 days a year, do not round intermediate calculations round your final answer to 2 decimal places)

1.Return on equity (use average balance sheet figures)

2. return on assets (use average balance sheet figures)

3. return on capital (use average balance sheet figures)

4.days in inventory (use start of year balance sheet figures)

5. inventory turnover(use start of year balance sheet figures)

6. average collection period( use start of year balance sheet figures)

7.operating profit margin

8. long term debt ratio (use end of year balance sheet figures)

9.total debt ratio (use end of year balance sheet figures)

10. times interest earned

11. cash coverage ratio

12. current ratio (use end of year balance sheet figures)

13. quick ratio (use end of year balance sheet figures)

Answer 1

	RATIO NAME	Calculation	Ratio
1	Return on equity	=1225/((6724+7121)/2) =	17.70%
2	Return on assets	=1225/((26904+26993)/2) =	4.55%
3	Return on capital	=1225/((26904+26993-4594-5200)/2) =	5.56%
	[Capital is taken as Total assets-Current liabilities]
4	Days in inventory	=188*365/3560 =	19.28
5	Inventory turnover	=3560/188 =	18.94
6	Average collection period	=2290*365/12200 =	68.51
7	Operating profit margin	=2385/12200 =	19.55%
8	Long term debt ratio	=9508/26904 =	35.34%
9	Total debt ratio	=(4594+9508+6078)/26904 =	75.01%
10	Times interest earned	=2385/635 =	3.76
11	Cash coverage ratio	=79/4594 =	0.02
12	Current ratio	=2915/4594 =	0.63
13	Quick ratio	=(79+1882)/4594 =	0.43