Net sales Cost of goods sold Selling and administrative expenses Interest expense Other income (expense) Income...

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Net sales Cost of goods sold Selling and administrative expenses Interest expense Other income (expense) Income tax expense N (a) For each company, compute the following ratios. (Round all answers to 2 decimal places, e.g. 1.85 or 1.85%. Target Wal-Ma

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Answer 1

Answer #1

Ans. 1	Current ratio = Total current assets / Total current liabilities

	Target	$18,000 / $11,000	1.64 : 1
	Wal - mart	$47,000 / $54,000	0.87 : 1

Ans. 2	Accounts receivable turnover ratio = Net sales / Average accounts receivable

	Target	$66,800 / $7,700	8.68	times
	Wal - mart	$413,000 / $3,800	108.68	times

Ans. 3	Average collection period = No. of days in year / Net credit sales * Average accounts receivables

	Target	365 / $66,800 * $7,700	42.07	days
	Wal - mart	365 / $413,000 * $3,800	3.36	days

Ans. 4	Inventory turnover = Cost of goods sold / Average inventory

	Target	$46,000 / $6,800	6.76	times
	Wal - mart	$308,000 / $34,200	9.01	times

Ans. 5	Days in inventory = No. of days in year / Inventory turnover ratio

	Target	365 / 6.76	53.99	days
	Wal - mart	365 / 9.01	40.51	days

Ans. 6	Profit margin = Net income / Net sales * 100

	Target	$4,230 / $66,800 *100	6.33%
	Wal - mart	$18,920 / $413,000 * 100	4.58%

Ans. 7	Asset turnover = Net sales / Average assets

	Target	$66,800 / $44,250	1.51	times
	Wal - mart	$413,000 / $165,000	2.50	times

	*Average assets = (Beginning assets + Ending assets) / 2

	Target	($43,000 + $45,500) / 2	$44,250
	Wal - mart	($162,000 + $168,000) / 2	$165,000

Ans. 8	Return on assets = Net income / Average assets * 100

	Target	$4,230 / $44,250 *100	9.56%
	Walmart	$18,920 / $165,000 * 100	11.47%

Ans. 9	Return on Common stockholder's equity = Net income / Average Common stockholder's equity * 100

	Target	$4,230 / $15,600 *100	27.12%
	Walmart	$18,920 / $66,500 * 100	28.45%

	* Average Stockholder's equity = (Beginning equity + Ending equity) / 2

	Target	($13,500 + $17,700) / 2		$15,600
	Walmart	($64,000 + $69,000) / 2		$66,500

Ans.10	Debt to assets ratio = Total liabilities / Total assets * 100

	Target	$27,800 / $45,500 * 100	61.10%
	Walmart	$99,000 / $168,000 * 100	58.93%

	*Total liabilities = Current liabilities + Long term debt

		Target	Walmart
	Current liabilities	$11,000	$54,000
	Long term debt	$16,800	$45,000
	Total liabilities	$27,800	$99,000

Ans. 11	Time interest earned = Income before interest and taxes / Interest expenses

	Target	$6,400 / $680	9.41	times
	Walmart	$28,000 / $1,800	15.56	times

	*Calculation of income before interest and taxes:
		Target	Walmart
	Net sales	$66,800	$413,000
	Cost of goods sold	-$46,000	-$308,000
	Selling & administrative expenses	-$14,400	-$77,000
	Income before interest and taxes	$6,400	$28,000

Ans. 12	Free cash flow = Net cash provided by operating activities - Capital expenditures - Dividends

	Target	$5,600 - $1,800 - $450	$3,350
	Walmart	$25,600 - $12,100 - $4,300	$9,200

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