Based on the financial statements of Brown Company, calculate the following rati

Question

Based on the financial statements of Brown Company, calculate the following ratios for 2009. (Please note you should not use 2007 values for calculation)

a. Profitability ratios: return on equity; return on assets; profit margin; gross profit margin; and general overhead ratio;

b. Solvency ratios: Debt to equity; leverage multiplier; quick ratio; current ratio;times interest earned ratio;

c. Activity ratios: Asset turnover; working capital turnover; inventory turnover;account receivable collection period; account payable collection period;

d. Using the DuPont method, identify the components that contribute most to the observed change in Brown’s return on equity from 2007 to 2009. State the

reasons for the observed change.

e. Evaluate the company’s bankruptcy risk using Z-score.

Explanation / Answer

=1860/((3000+2300+1996)/2) 50.99% Net income 1860 Total avg assets 22850 Reurn on assets 8.14% Profit Margin Sales 19000 COGS 12000 Gross Margin 7000 Gross Margin ratio 36.84% Margin 1860 Margin ratio 9.79% Overhead ratio = Operating Expenses / (Taxable net interest income + Operating income) 6.45 Debt 15004 Equity 4296 Debt/Equity                                  3.49 current ratio=CA/CL CA 9900 CL 4400 current ratio=CA/CL 2.25 QR=(CA-inventories)/CL CA 9900 inventories 4200 5700 CL 4400 QR=(CA-inventories)/CL                                  1.30 Times int earned EBIT 4500 Interest 1200 Times int earned 3.75 Asset Turnover = Sales or Revenues / Total Assets Sales 19000 total assets 23700 Asset turnover                                  0.80 Working capital (CA-CL) 5500 Working capital turnover                                  3.45

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