Use the above information from the tables to work out the following missing entr
ID: 2729374 • Letter: U
Question
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.)
Long-term debt ratio 0.3 Times interest earned 10.0 Current ratio 1.6 Quick ratio 1.0 Cash ratio 0.3 Inventory turnover 3.0 Average collection period 73 daysExplanation / Answer
The Current liabilities of this year = Accounts Payable + Notes Payable = 25+ 35 = $ 60
Current Ratio = Current Assets / Current Liabilities
1.6 = Current Assets / 60
Current Assets = $ 96
Quick Ratio = Quick Assets / Current Liabilities
1 = Quick Assets / 60
Quick Assets = $ 60
Current Assets – Inventories = Quick Assets
96 – Inventories = 60
Inventories = $ 36
Cash Ratio = Cash & Cash Equivalent / Current Liabilities
0.3 = Cash & Cash Equivalent / 60
Cash & Cash Equivalent = $ 18
Current Assets = Cash & Marketable Securities + Accounts Receivable + Inventories
96 = 18 + Accounts Receivable + 36
Accounts Receivable = $ 42
Inventory Turnover Ratio = Cost of Goods sold / Average Inventory
3 = Cost of goods sold /34
Cost of Goods sold = $ 102
Total Assets = Current Assets + Net property, plant, and equipment
200 = 96 + Net property, plant, and equipment
Net property, plant, and equipment = $ 104
Average Collection Period = Average Account Receivable / (Net Sales * 365)
Average Account Receivable = 42 (Closing Account Receivable, as stated in question- Calculated using start of year values)
Average Collection Period = Average Account Receivable * 365 / Net Sales
73 = 42 * 365 / Net Sales
Net Sales = 210
Total Liabilities = Current Liabilities + Long term debts + Shareholders’ Equity
200 = 60 + Long term debts + Shareholders’ Equity
Long term debts + Shareholders’ Equity = 140
Long term Debt Ratio = Long Term Debts / (Long term debts + Shareholders’ Equity)
0.3 = Long term debts / 140
Long term debts = 42
Shareholders’ Equity = 140 – 42 = 98
Shareholders’ Equity = 98
Times interest Earned Ratio = EBIT / Interest Expenses
10 = 62/Interest Expenses
Interest Expenses = 6.2
INCOME STATEMENT
Net Sales
210
Cost of goods sold
102
Selling, General & administrative expenses
18
Depreciation
28
Earning before interest & Taxes (EBIT)
62
Interest Expenses
6.2
Income before Tax
55.8
Tax @ 35%
19.53
Net Income
36.27
BALANCE SHEET
(Figures in $ millions)
This Year
Last Year
Assets
Cash and marketable securities
18
$ 28
Accounts receivable
42
42
Inventories
36
34
Total current assets
96
$ 104
Net property, plant, and equipment
104
33
Total assets
200
$137
Liabilities and shareholders’ equity
Accounts payable
$25.00
$ 20
Notes payable
35.00
40
Total current liabilities
60
60
Long-term debt
42
28
Shareholders’ equity
98
49
Total liabilities and shareholders’ equity
$200.00
$137
Return on Equity Ratio = Net Income / Shareholder’s equity
Return on Equity = 36.27/ 98
Return on Equity Ratio = 0.37
INCOME STATEMENT
Net Sales
210
Cost of goods sold
102
Selling, General & administrative expenses
18
Depreciation
28
Earning before interest & Taxes (EBIT)
62
Interest Expenses
6.2
Income before Tax
55.8
Tax @ 35%
19.53
Net Income
36.27
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