Long-term debt ratio 0.3 Times interest earned 8.0 Current ratio 1.4 Quick ratio
ID: 1169944 • Letter: L
Question
Long-term debt ratio 0.3
Times interest earned 8.0
Current ratio 1.4
Quick ratio 1.0
Cash ratio 0.4
Inventory turnover 4.0
Average collection period 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 11.00 Depreciation 21.00 Earnings before interest and taxes (EBIT) Interest expense Income before tax Tax (35% of income before tax) Net incomeExplanation / Answer
Inventory turnover=cost of goods sold/Inventory 4 Cost of goods sold/27= 4 Cost of goods sold= 108 (4*27) Average collection period=365/Receivable turnover 73 Receivable turnover= 5 (365/73) Receivable turnover=Sales/Receivable= 5 Sales/35= 5 Sales= 175 (35*5) Time interest earned=EBIT/Interest 8 35/interest expense= 8 Interest expense=35/8= 4.375 Long term debt /Total Assets= 0.3 Long term debt /125= 0.3 Long term debt=125*0.3= 37.5 Current Assets/Current Liabilities 1.4 Current Assets/45= 1.4 Current Assets=45*1.4= 63 Cash Ratio= 0.4 Cash and marketable securities/Current liabilities 0.4 Cash and marketable securities/45 0.4 Cash and marketable securities=45*0.4= 18 Quick Ratio= 1.0 (Cash & marketable securities+Account Receivable)/Current Liabilities= 1.0 (18+Accounts Receivable)/45= 1.0 18+Accounts Receivable= 45.0 Accounts Receivable=45-18= 27.0 RETURN ON EQUITY=NET INCOME/SHAREHOLDERS EQUITY RETURN ON EQUITY=19.906/42.5= 0.4684 RETURN ON EQUITY (PERCENTAGE)= 46.84% BALANCE SHEET (Figures in $ millions) This Year Last Year Assets Cash and marketable securities 18 $21 Accounts receivable 27.0 35 Inventories 18.0 27 Total current assets 63 $83 Net property, plant, and equipment $62.00 26 Total assets $125.00 $109 Liabilities and shareholders’ equity Accounts payable $20.00 $15 Notes payable 25 30 Total current liabilities $45.00 $45 Long-term debt 37.5 21 Shareholders’ equity $42.50 43 Total liabilities and shareholders’ equity $125.00 $109 Income Statement Net sales 175 Cost of goods sold 108 Selling , General Admin expenses 11.00 Depreciation 21.00 Earning Before Interest and taxes(EBIT) 35.00 Interest expense 4.375 Income before taxes 30.625 Tax(35%of income before tax) 10.71875 Net Income 19.906
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