Be sure to show all work and/or use Excel formulas to demonstrate how you arrive

Question

Be sure to show all work and/or use Excel formulas to demonstrate how you arrived at your answer.

(3-1) DSO

Greene Sisters has a DSO of 20 days. The company’s average daily sales are $20,000. What is the level of its accounts receivable? Assume there are 365 days in a year.

(3-2) Debt Ratio

Vigo Vacations has $200 million in total assets, $5 million in notes payable, and $25 million in long-term debt. What is the debt ratio?

(3-3) Market/Book Ratio

Winston Watch’s stock price is $75 per share. Winston has $10 billion in total assets. Its balance sheet shows $1 billion in current liabilities, $3 billion in long-term debt, and $6 billion in common equity. It has 800 million shares of common stock outstanding. What is Winston’s market/book ratio?

(3-4) Price/Earnings Ratio

Reno Revolvers has an EPS of $1.50, a cash flow per share of $3.00, and a price/cash flow ratio of 8.0. What is its P/E ratio?

(3-5) ROE

Needham Pharmaceuticals has a profit margin of 3% and an equity multiplier of 2.0. Its sales are $100 million and it has total assets of $50 million. What is its ROE?

Intermediate Problems 6–10

(3-6) DuPont Analysis

Gardial & Son has an ROA of 12%, a 5% profit margin, and a return on equity equal to 20%. What is the company’s total assets turnover? What is the firm’s equity multiplier?

(3-7) Current and Quick Ratios

Ace Industries has current assets equal to $3 million. The company’s current ratio is 1.5, and its quick ratio is 1.0. What is the firm’s level of current liabilities? What is the firm’s level of inventories?

Explanation / Answer

(3-1)
Accounts Receivable=DSO*Daily Sales=20*20000=400000

(3-2)
Debt Ratio=Total Liabilities/Total Assets=(5+25)/200=0.15

(3-3)
Market/Book Ratio=(Share Price*Number of Shares)/Book Value of Equity=(75*800)/(6000)=10

(3-4)
P/E=P/CF*CF/EPS=8*3/1.5=16

(3-5)
RoE=Net Profit Margin*Sales/Total Assets*Equity Multiplier=3%*100/50*2=12%

(3-6)
Asset Turnover=RoA/Net Profit Margin=12%/5%=2.4
Equity Multiplier=RoE/(Net Profit Margin*Asset Turnover)=20%/(5%*2.4)=1.67

(3-7)
Current Liabilities=Current Assets/Current Ratio=3/1.5=$2 million
Inventories=Current Assets-Quick Ratio*Current Liabilies=3-1*2=$ 1 million

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