Question

Longtere debt ratio Cash ratio Inventory turnover Average collection period Use the above information from the tables to work out the following missing entries, and then calculate the company's return on equity. Note: Turnover and the average collection period are calculated using start-of-year, not average, values. (Enter your answers in millions. Round Intermediate calculations and final answers to 2 decimal places.) INCOME STATEMENT (Figures in millions) Cost of goods sold Selling general and administrative expenses Earnings before interest and taxes (EBIT) Income before tax BALANCE SHEET (Figures in S millions) Cash and marketable securities ACCOnts Tecevabile Total current assets Net property, plant and equipment Liabilities and shareholders equity Accounts payable Notes payable Total current labies Long-term deb Shareholders equity Total abilities and shareholders equity

Answer 1

Solutions - All the figures in ($) are in million. Total current l'abilities - Accounts Payable + Notes Payable + $ 25.00 + $ 30 = $55 we have current ratio = 1.4 Current Ratio a Total current Assets Total current liabilities 1.4= Assets Total Current $ 55 1.48 $55= Total current Assets $77 = Total current Assets We have Quick Ratio = 1.0 Quick Ratio a current Assets - Inventory Total current liabilities 1.02 Inventory $ 77 – $ 55 1,0 x $55 - $77- Inventory $55 - $ 77- Inventory

Inventory = $77-$55 = $22. we have cash Ratio - 0.2 Cash Ratio = Cash & Cash Equivalents Total current liabilities 0.2 z Cash & Cash Equivalents $ 55 0.2 x $55 - lash & Cash Equivalents $11 = Cash & Cash Equivalents Now, Total current Assets = $77 and Total current Assets = Cash & Cash Equivalents + Accounts ReceivabletInventory $ 77 . $ 11 + $02 + Accounts Receivable $ 77--$11 - $22- Accounts Receivable $ 44 = Accounts Receivable Total liabilities & Shareholder's Equity We know that Total Assets - so Total Assets = $115

Total Assets: Now, Total current Assets 4 Net Properties Plant & Equipment $77+ Net Property, plant & Equipment $115= $38. = Net Pooperty, Plant & Equipment Now, we have long term debt ratio = 0.4 long term Debt Ratio = long term Debt Total Assets 0,4 = long term Debt $115 0.4x $115 = long term Debt $ 46 = long term debt We know that , Total liabilities and shareholder's Equity = Total current liabilitiest long term Debt + Shareholder's Equity $115 = $ 55+ $46+ Shareholder's Equity $ 115 - $55 - $46= Shareholder's Equity - Shareholder's Equity

all the missing figures Now, we have computed of balance sheel. BALANCE SHEET (Figures in & million) current year 44 $ 77 Assets Cash & Cash Equivalents Accounts Receivable Inventories Total current Assets Net Property Plant & Equipment Total Asset L'abilities and shareholder's Equity Accounts Payable Notes Payable $ 115 115 $ lo 25 a 55 46 Total current liabilities Long term Debt Shareholder's Equity Total liabilities and shareholder's . Equity $115

Now, we will compute missing figures of income Statement we have, Average collection Periool - 73 days and Average Collection Periods 3658 Beginning Accounts - Receivable Net sales 73 = 365X $ 34 Net sales Net sales a 365 * $34 73 $170 I Accounts Receivable Beginning figure is used, as it is already asked to use Now, Inventory Turnover Ratio - 5.0 Inventory Turnover Ratio - Cost of Goods sold Beginning Inventory 5.0 = lost of Goods sold $26 5.08 $26 = cost of Goods sold

$.130 = cost of Goods sold Now, we will compute Earning before Interest & Taxes Net sales Amount (in million) $ 170 $130 $ 10.00 Less: lost of Goods sold . Selling General and Admin. Expenses . Depreciation . Earning Before Int & Tax $ 20,00 $10 Farning Before Interest & Tax is $10 million , Now, we will compute Interest Expense. Times Interest Earned Ratioa EBIT .: Interest Expense 8.0 = $10. Interest expense Interest Expense = $10 a $1:25

INCOME STATEMENT figures in ($) millions $ 170.00 $ 130.00 $10.00 ses Net sales Less! Cost of Goods sold Selling, General and Admin Expenses Depreciation Earning Before Interest & Tax Less: Interest - Earning Before Tax Less Tax (35%) Net Income $ 20.00 $ 10.00 : $ 1.25 $ 8.75 $ 3,0625 $ 5,6875 So, the net income is $5,687,500

Return on equity = net income/ common equity

= $5,687,500/$14,000,000 = 0.40625 or 40.625%