Homework Answers
1. Financial Ratios:
Short-term Liquidity ratios: 2019 2018
Current ratio = Current assets/current liabilities 3.58 3.30
Quick ratio = Quick assets/Current liablities 2.17 2.10
Quick assets = Current assets-Inventories- Prepaid exp.
Cash Ratio = Cash & Bank balance +Current investments/Current liab. 0.64 0.62
Operating Cash flow ratio : Cash flow from operations/Current liab. 0.420 0.357
Debt Management Ratios:
Times Interest earned ratio(Accrual basis) = Earnings before Interest & tax/ Interest expense
24.10 18.02
Long term Debt to Equity ratio : Long-term Debt/Equity* 0.009 0.058
Equity = Common stock+Preferred stock
Debt to Equity ratio:Total liabilities/ Total equity 0.33 0.41
Long-term Debt to Total Assets Ratio (Long term debt/Total assets) 0.007 0.041
Debt to total assets ratio(Total liablities/Total assets) 0.25 0.29
Assets Efficiency ratios:
Accounts receivables turnover ratio(Net credit sales/Average acc. recv.) 6.22 6.09
Inventory turnover ratio( Cost of goods sold/Average inventory) 4.49 3,95
Asset turnover ratio(COGS/Total assets) 1.09 1.12
Profitablitiy ratios:
Gross Profit % (Gross Profit/Sales *100) 39.28% 38.65%
Operating margin ratio:(Operating profit/Sales*100) 15.12 % 15.32%
Net Profit margin % ratio (Net profit/Sales * 100) 9.29% 9.67%
Return on Assets ratio :Net profit after tax + Interest/Average total assets 19.25% 20.10%
Return on Equity(Net profit after tax- Preference dividend)/Shareholders equity 22.17% 24.86%
Stockholder's Ratios:
Earnings per share = Earnings available for equity shareholders/No. of equity shares 4.81 4.36
Return on Common equity(Net income/Average Common equity) 4.74 4.30
Dividend yield ratio (Dividend per share/ Market price per share) 0.97 0.96
Dividend payout ratio (Dividend per share/Earning per share) 15.59 13.53
Total payout ratio(Dividends paid/Net earnings) *100 15.83 13.73
Stock Repurchase payout(Stock repurchases/Market capitalization at beginning)*100 70.24 56.27
2.Yes, Burch's short term liquidity is adequate
3. Burch is using its assets efficienlty because receivables and inventories turnover appear strong
4. Burch is profitable.
5.Low risk.
6. DuPont analysis =
Net profit margin * Asset turnover * equity multiplier
Equity multiplier = Average assets/ Average equity 13.87 16.46
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