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Business Finance Answers_Part_7

# Business Finance Answers_Part_7 - CHAPTER 3 B-25 To get...

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CHAPTER 3 B-25 To get EBITD (earnings before interest, taxes, and depreciation), the numerator in the cash coverage ratio, add depreciation to EBIT: EBITD = EBIT + Depreciation = \$23,556.52 + 2,382 = \$25,938.52 Now, simply plug the numbers into the cash coverage ratio and calculate: Cash coverage ratio = EBITD / Interest = \$25,938.52 / \$3,605 = 7.20 times 24. The only ratio given which includes cost of goods sold is the inventory turnover ratio, so it is the last ratio used. Since current liabilities is given, we start with the current ratio: Current ratio = 1.40 = CA / CL = CA / \$365,000 CA = \$511,000 Using the quick ratio, we solve for inventory: Quick ratio = 0.85 = (CA – Inventory) / CL = (\$511,000 – Inventory) / \$365,000 Inventory = CA – (Quick ratio × CL) Inventory = \$511,000 – (0.85 × \$365,000) Inventory = \$200,750 Inventory turnover = 5.82 = COGS / Inventory = COGS / \$200,750 COGS = \$1,164,350 25. PM = NI / S = –£13,482,000 / £138,793 = –0.0971 or –9.71% As long as both net income and sales are measured in the same currency, there is no problem; in fact, except for some market value ratios like EPS and BVPS, none of the financial ratios discussed in the text are measured in terms of currency. This is one reason why financial ratio analysis is widely used in international finance to compare the business operations of firms and/or divisions across national economic borders. The net income in dollars is: NI = PM × Sales NI = –0.0971(\$274,213,000) = –\$26,636,355 26. Short-term solvency ratios:

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Business Finance Answers_Part_7 - CHAPTER 3 B-25 To get...

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