ROE is 18.5 percent. What is the amount of the firm’s net fixed assets?
CA + NFA = TA. So, we need to find CA and TA in order to solve for NFA.
Current Ratio = CA / CL
CA
= Current Ratio x CL
= 1.25 x $875
= $1,093.75
To find total assets, we must first find the total debt and equity from the given
information. So, using the profit margin:
Profit Margin
= Net Income / Sales
Net Income
= Profit Margin x Sales
= 0.095 x $5,870
= $549.10
Using the net income figure as an input into ROE to find total equity:
ROE
= Net Income / Total Equity
Total Equity
= Net Income / ROE
= $549.10 / 0.185
= $2,968.11
Long-term debt ratio
= 0.45 = Long-term debt / (Long-term debt + Total Equity)
Long-term debt
= 0.45(Long-term debt + $2,968.11)
0.55 Long-term debt
= $1,335.65
Long-term debt
= $2,428.45
Total debt
= CL + Long-term debt
= $875 + 2,428.45
= $3,303.45
Total Assets
= Total Debt + Total Equity
= $3,303.45 + 2,968.11
= $6,271.56
Solving the balance sheet identity:
Net Fixed Assets
= Total Assets – Current Assets
= $6,271.56 – 1,093.75
= $5,177.81

#5. Some recent financial statements for Smolira Golf Corp. follow:
Find the following financial ratios for Smolira Golf Corp. (use year-end figures
rather than average values where appropriate):
Short-term solvency ratios:
a.
Current ratio = Current assets / Current liabilities
Current ratio for 2008 = $56,260 / $38,963 = 1.44 times
Current ratio for 2009 = $60,550 / $43,235 = 1.40 times
b.
Quick ratio = (Current assets – Inventory) / Current liabilities
Quick ratio for 2008 = ($56,260 – 23,084) / $38,963 = 0.85 times
Quick ratio for 2009 = ($60,550 – 24,650) / $43,235 = 0.83 times
c.
Cash ratio = Cash / Current liabilities
Cash ratio for 2008 = $21,860 / $38,963 = 0.56 times
Cash ratio for 2009 = $22,050 / $43,235 = 0.51 times

Asset utilisation ratios:
d.
Total asset turnover = Sales / Total assets
Total asset turnover = $305,830 / $321,075 = 0.95 times
e.
Inventory turnover = Cost of goods sold / Inventory
Inventory turnover = $210,935 / $24,650 = 8.56 times
f.
Receivables turnover = Sales / Accounts receivable
Receivables turnover = $305,830 / $13,850 = 22.08 times
Long-term solvency ratios:
g.
Total debt ratio = (Total assets – Total equity) / Total assets
Total debt ratio for 2008 = ($290,328 – 176,365) / $290,328 = 0.39
Total debt ratio for 2009 = ($321,075 – 192,840) / $321,075 = 0.40
h.
Debt-equity ratio = Total debt / Total equity
Debt-equity ratio for 2008 = ($38,963 + 75,000) / $176,365 = 0.646
Debt-equity ratio for 2009 = ($43,235 + 85,000) / $192,840 = 0.665
i.
Equity multiplier = 1 + Debt/Equity
Equity multiplier for 2008 = 1 + 0.65 = 1.646
Equity multiplier for 2009 = 1 + 0.66 = 1.665
j.
Times interest earned = EBIT / Interest
Times interest earned = $68,045 / $11,930 = 5.70 times
k.
Cash coverage ratio = (EBIT + Depreciation) / Interest
Cash coverage ratio = ($68,045 + 26,850) / $11,930 = 7.95 times
Profitability ratios:
l.
Profit margin = Net income / Sales
Profit margin = $36,475 / $305,830 = 0.1193 or 11.93%
m.
Return on assets = Net income / Total assets
Return on assets = $36,475 / $321,075 = 0.1136 or 11.36%
n.
Return on equity = Net income / Total equity
Return on equity = $36,475 / $192,840 = 0.1891 or 18.91%
Or ROE = ROA x EM
= 11.36% x 1.66 = 18.91%
DuPont identity is: ROE = (PM)(TAT)(EM)
= (0.1193)(0.95)(1.66)
= 0.1891 or 18.91%

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- Spring '11
- tohmunheng
- Corporate Finance