Question

The intent of this assignment is just basic accounting and financial statement construction These will get more complicated over the course of the semester, but this one is just to ensure that everyone is on the same page. Pay close attention to the notes at the end of the assignment and the definitions posted to the blackboard site (Ratio Definitions and Case Analysis). You will only need each number on time. Check the syllabus for the due datel Below are numbers from a balance sheet and income statement. Construct the financial ratios requested below. Sales Operating Costs Depreciation Interest Expense Tax Expense Cash Receivables Inventories Fixed Assets, Net Payables Accrued Expenses Long-Term Loan Common Equity 512566 367540 10000 5000 29408 1000 30000 61256 50000 11000 10000 50000 71256

Answer 1

Following is the income statement

Sales	512566
Operating costs	(367540)
Operating profit (Earning before interest depriciation and tax)	145026
Depriciation	(10000)
Earning before interest and tax	135026
Interest exp	(5000)
Earning before tax	130026
Tax expense	(29408)
Earning after tax or net income	$100618

Balance sheet :-

Assets
Current assets
Cash	1000
Receivables	30000
Inventories	61256
Total current assets	92256
Non current assets
Fixed assets, net	50000
Total assets	$142256
Liabilities & stockholders equity
Liabilities
Payables	11000
Accrued expenses	10000
Long term loan	50000
Total liabilities	71000
Stockholder's equity
Common equity	71256
Total liabilities & stockholder equity	$142256

Following are the ratios :-

5 Ratios of debt to shareholders equity = total liabilities / shareholder's equity

= 71000/71256 = 0.99 or 1

6. Interest coverage = earning before interest and tax / interest expense

= 135026/5000 = 27.01

7. Net profit margin = net income / sales x 100

= 100618/512566x100 = 19.63%.

8. Sales to total assets (asset turnover) = sales / total assets = 512566/142256 = 3.60

9. Return on assets = net earnings / total assets x100

= 100618/142256x100 = 70.73%.

10 . Equity multiplier = total assets / total equity

= 142256/71256 = 1.99 or 2

11 . Return on equity = net income / sales x100

= 100618/71256x100 = 141.21%.