Balance Sheet (millions) Current Assets _____________________________ Current Li

Question

Balance Sheet (millions)

Current Assets _____________________________ Current Liabilities
Cash $104 ________________________________ Accounts Payable $232
Accounts Receivable $455 __________________ Notes Payable $196
Inventory 553

Total $1,112 .......................................................Total $ 428
============================================================================
Fixed Assests
Net Plant and Equipment: $1,644 ______________ Long Term Debt $408
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Owners' Equity
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Common Stock $600
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Retained Earnings $1320

______________________________________> Total Common Equity $1,920


Total Assets: $2,756 |||| Total Liabilities and Owners Equity $2,756

============================================================================
Income Statement (millions) ______________________Other Information

Sales: $1,509 ____________________________________Cash Flow: $477 Million
Cost of Goods Sold: $750
Depreciation: $65 _______________________________Number of Share: $76.8 Million

Earning Before Interest/Taxes _____________________Current Share Price (EBIT): $694 _____________________________________ $78.62/ea.
===========================================================================
Interest Expense: $70

Taxable Income: $624
Taxes: $212
Net Income: $412
=========================================================================== Using the financial statements provided, I have to calculate the financial ratios for the year. I also will need to calculate all of the Liquidity and Asset Management ratios, Total debt to total assets ratio, all of the Profitability ratios, the P/E and M/B ratio.

I need your expertise, as I am at a loss on this. As you can see, I cannot even seem to be able to transfer over an excel table/spreadsheet (of which I have to convert the answers into) so I apologize if this outline has proven to be difficult. I tried my best. I Thank You very much in advance!

Explanation / Answer

Industry average inventory turnover = 6 = Sales/Inventory.
To match this level: Inventory = Sales/6
$1509/6 = $251.5.

Current inventory = $553. Reduction in inventory = $553 - $251.5 = $301.5. This $301.5 is to be used to reduce the debt of the company.

New debt level = $408 - $301.5 = $106.5. Interest on this level of debt = $106.5x0.1 = $10.65

Look at the income statement to get net income:
EBIT $694
Int $10.65
EBT $683.35 (EBIT-Int)
Tax $212
NI $471.35(EBT-Tax)

ROE = Net income/Equity = $471.35/$1,920 = 0.2454 or 24.54%

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