SOLUTIONS CHAPTER 3 - CHAPTER 3 RATIO ANALYSIS 3-1 3-2 (d)...

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CHAPTER 3 RATIO ANALYSIS 3-1 3-2 (d) No effect (e) No effect 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
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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 = $8,000 - $3,200 = $4,800
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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 December 31, 2006 and 2007 2006 2007 Cash 7.0% 12.5% Accounts receivable 11.4 13.2 Inventories 15 .7 17 .5 Total current assets 34.1% 43.2% Net plant and equipment 65 .9 56 .8 Total assets 100.0% 100.0% Accounts payable 11.4% 13.2% Notes payable 8.7 7.4 Accrued payable 3 .5 4 .3 Total current debts 23.6% 24.9% Long-term debt 26 .2 21 .4 Total liabilities 49.8% 46.3% Common stock 43.7 42.4 Retained earnings 6 .5 11 .3 Total stockholder's equity 50 .2% 53 .7% Total claims 100.0% 100.0% Net sales 100.0% 100.0% Cost of goods sold 60 .9 62 .4 Gross profit 39.1% 37.6% Operating expenses 18.5 14.2 Depreciation charges 3.3 2.5 Interest expense 2 .0 1 .4 Total expenses 23 .8% 18 .1% Net income before taxes 15.3% 19.5% Income taxes at 30% 4 .6 5 .9 Net income after taxes 10.7% 13.7%
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(b) The common-size statements are the financial statements in percent form and provide a common basis for analysis. Comparisons can be made within the company and other companies of about the same size in the same industry. The common-size balance sheet shows that total current assets for 2007 have increased by almost 10 percent over 2006 and that total current liabilities for 2007 have increased by only 1.3 percent. The net result is that the working capital position did not make any investment in plant and equipment; the decreases in
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This note was uploaded on 02/20/2012 for the course FIN 7023 taught by Professor Wald during the Spring '12 term at The University of Texas at San Antonio- San Antonio.

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SOLUTIONS CHAPTER 3 - CHAPTER 3 RATIO ANALYSIS 3-1 3-2 (d)...

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