Use the following information to answer this question. Windswept, Inc. 2010 Inco

Question

Use the following information to answer this question.

Windswept, Inc. 2010 Income Statement ($ in millions)

Net sales $ 9,000

Less: Cost of goods sold 7,350

Less: Depreciation 360

Earnings before interest and taxes $ 1,290

Less: Interest paid 87

Taxable Income $ 1,203

Less: Taxes 421

Net income $ 782

Windswept, Inc. 2009 and 2010 Balance Sheets ($ in millions)

2009 2010 2009 2010

Cash $ 160 $ 190 Accounts payable $ 1,150 $ 1,332

Accounts rec. 840 740 Long-term debt 1,000 1,233

Inventory 1,570 1,565 Common stock $ 3,190 $ 2,910

Total $ 2,570 $ 2,495 Retained earnings 470 720

Net fixed assets 3,240 3,700   

Total assets $ 5,810 $ 6,195   Total liab. & equity $ 5,810 $ 6,195   

What is the equity multiplier for 2010?

Explanation / Answer

Equity multiplier = Total assets/ Total equity

Total assets in 2010 = $6,195 millions

Total equity in 2010 = Common stock + Retained earnings

= 2,910 + 720

= $3,630

Equity multiplier = Total assets/ Total equity

= 6,195 / 3,630

= 1.71

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