IM_text_1-220 - CHAPTER 3 RATIO ANALYSIS 3-1 3-2 (d) No...

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Unformatted text preview: CHAPTER 3 RATIO ANALYSIS 3-1 3-2 (d) No effect (e) No effect 1 Current Ratio = $ 200 $ 200 = 1 . Quick Ratio = $ 200- $ 80 $ 200 = . 6 Debt Ratio = $ 300 $ 500 = . 6 Times interest earned = $ 150 $ 50 = 3 . Inventory turnover = $ 600 $ 80 = 7 . 5 Account Receiveable Turnover = $ 1 , 000 $ 20 = 50 . Average collection Period = 365 days 50 = 7 . 3 days Asset turnover = $ 1 , 000 $ 500 = 2 . Profit margin on sales = $ 50 $ 1 , 000 = . 05 Return on Equity (ROE) = $ 50 $ 200 = . 25 Return on Total Assets (ROA) = $ 50 $ 500 = . 10 ( a ) Current ratio = $ 20 , 000- $ 2 , 000 $ 10 , 000- $ 2000 = 2 . 25 ( b ) Current ratio = $ 20 , 000 + $ 5 , 000 $ 10 , 000 + $ 5 , 000 = 1 . 67 ( c ) Current ratio = $ 20 , 000 + $ 4 , 000 $ 10 , 000 = 2 . 4 3-3 Current liabilities = $40,000 Cash + accounts receivable = $40,000 Sales = $200,000 Receivables = $10,000 Quick assets = cash + receivables = cash + $10,000 = $40,000 Cash = $30,000 Inventory = $20,000 Cash $ 30,000 Notes payable $ 40,000 Receivables 10,000 Long-term debt 20,000 Inventories 20,000 Common stock 15,000 Net plant 40,000 Retained earnings 25,000 Total assets $100,00 Total claims $100,00 2 worth net debt term long s liabilitie current worth net debt total + = 5 . 1 000 , 40 $ 000 , 20 = + = s liabilitie current 1 000 , 40 $ = + = receivable accounts cash ratio Quick 2 000 , 100 $ = = sales turnover Asset days s receivable period collection Average 25 . 18 000 , 200 $ 365 = = Inventory Turnover = $200,000 inventory = 10 Asset Profit Return on 3-4 (a) Company Turnover Margin Assets A 3.00 10.0% 30.0% B 1.53 12.1 18.5 C 2.33 7.9 18.3 D 1.70 7.9 13.4 E 2.14 13.3 28.6 (b) The five company averages are: Return on assets = 2 x 10% = 20% The five-company averages are 2.00, 10%, and 20%. Company D has turnover, margin, and Return on Assets problems. Company B has turnover and Return on Assets problems. Company C has margin and Return on Assets problems. Company E is very good on all counts. 3-. Cost of goods sold = 80% x sales = 80% x $100,000 = $80,000 Gross profit = sales - cost of goods sold = $100,000 - $80,000 = $20,000 EBIT = $10,000 Gross profit = - operating expenses = EBIT $20,000 - operating expenses = $10,000 Operating expenses = $10,000 Net income before taxes = EBIT - interest = $10,000 - $2,000 = $8,000 Taxes = tax rate x net income before taxes = 40% x $8,000 = $3,200 Net income after taxes = net income before taxes - taxes 3 Turnover = 600 + 610 + 700 + 850 + 600 200 + 400 + 300 + 500 + 280 = 3,360 1,680 = 2 times Margin = 60 + 74 + 55 + 67 + 80 3,360 = 336 3,360 = 10% Times interest earned = operating Profit(EBIT) interest (2% of_sales) times EBIT 5 000 , 100 $ % 2 = = = $8,000 - $3,200 = $4,800 4 CAMILLE TOY COMPANY Income Statement Sales $100,000 Cost of goods sold 80,000 Gross profit $ 20,000 Operating expenses 10,000 Operating profit (EBIT) $ 10,000 Interest expenses 2,000 Net income before taxes $ 8,000 Taxes at 40% 3,200 Net income after taxes $ 4,800 3-6 (a) WILLIAMS COMPANY Common-size Financial Statements...
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IM_text_1-220 - CHAPTER 3 RATIO ANALYSIS 3-1 3-2 (d) No...

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