Question

3. Here are simplified financial statements for Phone Corporation in a recent year: INCOME STATEMENT (Figures in millions of dollars) Net sales Cost of goods sold Other expenses 3,193 4,060 4,049 2.518 Earnings before interest and taxes (EBIT) 2,566 685 1.881 658 1223 856 Interest expense Income before tax Taxes Cat 35%) Net income Figures in millions of dellars) Canh and marketable securite 2382 2490 cument assets Total curment assets 匆 3525 3 9973195 Net property plant, and equipment Other long-term assets 2771427503 Uabilities and shareholders equty 2564 3040 Short-serm debt Other curmrent labiltes Total cument liablities 47945400 0186833 61786149 9724 Long-term debt and leases Other long-term labilities haneholders equity Toal liabilities and shareholders equity 21 27s03 Calculate the following financial ratios for Phone Corporation: a Return on equity (Use average equity b. Days in inventory (Use beginning inventory) c Operating profit margin (Use after-tax operating income) d Total debt ratio (Use end of year values) e Current ratio (Use end of year values)

Answer 1

Ratios	formula	calculations	Result
Return on equity	Net Income/Average Shareholders' equity	1223/(9121+9724)/2	12.98%
Days in inventory	Inventory * 365 / COGS	238 * 365 / 4060	21.40 days
Operating profit margin	Operating profit / sales	2566/13193	19.45%
total Debt ratio	Debt / Total Assets	(4794+7018+6178)/27714	0.65
Current ratio	CA / CL	3525/4794	0.74