Question

Nano Network Inc.’s financial data are listed in Table below:

Compute the financial ratios during the fiscal year 2009 and interpret the company’s financial health. The closing stock price was $ 5.67 on Dec. 31, 2009, and the outstanding shares are 90,340,000. Note the balance sheet and income statement entries in this problem are not complete. Only relevant entries are listed. Do not attempt to add individual entries to confirm either current assets or current liabilities. Some ratios may not be defined due to lack of relevant financial data, just indicate “cannot determine it/not defined”.

1. Debt ratio
2. Times-interest-earned ratio
3. Current ratio
4. Quick ratio
5. Inventory turnover ratio
6. Day’s sales outstanding
7. Total assets turnover
8. Profit margin on sales
1. Return on total assets
10. Return on common equity
11. Price-to-earnings ratio
50. Book value per share

TABLE P2.3Balance Sheet for Nano Networks Inc.

	Dec. 2009 U.S. $ (000) (Year)	Dec. 2008 U.S. $ (000) (Year)
Balance Sheet Summary
Cash	158,043	20,098
Securities	285,116	0
Receivables	24,582	8,056
Inventory	0	0
Current assets	377,833	28,834
Property and equipment, net	20,588	10,569
Depreciation	8,172	2,867
Total assets	513,378	36,671
Current liabilities	55,663	14,402
Bonds	0	0
Preferred stock	0	0
Total common stockholder’s equity	457,715	17,065
Total liabilities and equity	513,378	36,671
Income Statement Summary
Total revenues	102,606	3,807
Cost of sales	45,272	4,416
Other expenses	71,954	31,661
Interest income	8,011	1,301
Income pre-tax	-6,609	-69
Income tax	2,425	2
Income continuing	-9,034	-30,971
Net income	-9,034	-30,971
EPS primary	-$0.1	-$0.80

Answer 1

As per rules I am answering the first 4 subparts of the question

1. Debt ratio = Debt/ Totalassets

= ( 513378-457715)/ 513378

=10.84%

Debt is very low. In fact the company can think of further financing through debt.

2. Times-interest-earned ratio = EBIT/ Interest

= (102606-45272-71954)/ 8011

=- 1.382

The EBIT is negative and not enough to cover the interest payments.

3. Current ratio=Current assets/ current liabilities

= 377833/55663

=6.79

This ratio is very high to cover the liabilities showing good liquidity of the business.

4. Quick ratio = (Current assets – Inventory) / Current liabilities

= (377833-0) /55663

=6.79

This ratio is very high to cover the liabilities showing good liquidity of the business.