The balance sheet and income statement shown below are for OLD Inc. Note that th
ID: 2663048 • Letter: T
Question
The balance sheet and income statement shown below are for OLD Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.Balance Sheet (in millions)
Assets
Cash and securities 2,500
Accounts receivable 11,500
Inventories 16,000
Total current assets 30,000
Net plant and equipment 20,000
Total Assets 50,000
Liabilities and Equity
Accounts payable 9,500
Notes payable 7,000
Accruals 5,500
Total current liabilities 22,000
Long-term bonds 15,000
Total debt 37,000
Common stock 2,000
Retained earnings 11,000
Total common equity 13,000
Total liabilities and equity 50,000
Income Statement (in millions):
Net sales 87,500
Operating costs expect depreciation 81,813
Depreciation 1,531
EBIT 4,156
Less Interest 1,375
EBT 2,781
Taxes 973
net Income 1,808
Other Data:
Shares outstanding (millions) 500
Common dividends $632.73
Int rate on notes payable & LT bonds 6.25%
Federal plus state income tax rate 35%
Year-end stock price $43.39
1. What’s the firm’s Debit Ratio?
2. What’s the firm’s ROA?
3. What’s the firm’s ROE?
4. What’s the firm’s BEP?
5. What’s the firm’s Profit Margin?
6. What’s the firm’s Operating Margin?
Explanation / Answer
1) Debt ratio = (Total assets - Total equity) / Total assets = ($50,000 - $13,000) / $50,000 = 0.74 times 2) ROA = Net income / Total assets = $1,808 / $50,000 = 3.616% 3) ROE = Net income / Total equity = $1,808 / $13,000 = 13.9% 4) BEP ratio = EBIT / Total assets = $4,156 / $50,000 = 0.083 times 5) Profit margin ratio = Net income / Sales = $1,808 / 87,500 = 0.02 or 2% 6) Operating margin ratio = Operating Profit/ Net sales = $4,156 / 87,500 = 0.047 or 4.7%
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