Question

The balance sheet in Table P2.4 summarizes the financial conditions for Flex Inc., an electronic outsourcing contractor, for fiscal year 2009. Compute the various financial ratios and interpret the firm’s financial health during fiscal year 2009. Note that the balance sheet and the 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.

(a) Debt ratio (b) Times-interest-earned ratio (c) Current ratio (d) Quick (acid-test) ratio

(e) Inventory turnover ratio (f) Day’s sales outstanding (g) Total assets turnover

(h) Profit margin on sales (i) Return on total assets (j) Return on common equity

(k) Price-to-earnings ratio. Assume a stock price of US$100 per share.

(l) Book value per share. Assume that 150,000 shares were outstanding.

TABLE P2.4 Balance Sheet for Flex Inc. Dec. 2009 U.S. $ ear 2,000,000 250,000 1,500,000 Dec. 2008 Balance Sheet Summarv Cash Securities Receivables Allowances Inventory Current assets U.S. $ ear 1,000,000 250,000 1.000.000 (100,000) 500,000 2,650,000 (250,000) 1,000,000 4,500,000 Property and equipment, net Depreciation Total assets 1,000,000 500,000 5,000,000 1,600,000 250,000 4,000,000 Current liabilities 1,500,000 1,000,000 Bonds Preferred stock Common stock Other stockholders' equity Total liabilities and equitv 1,500,000 1,000,000 750,000 1,250,000 5,000,000 500,000 1,500,000 4,000,000 Income Statement Summary Total revenues Cost of sales Other expenses Loss provision Interest expense Income pre-tax Income tax Income continuing Net income EPS primary EPS diluted 10,000,000 6,000,000 2,500,000 250,000 50,000 1,200,000 240,000 960,000 960,000 1.00 1.25 8,000,000 5,000,000 2,000,000 100,000 75,000 825,000 165,000 660,000 660,000 1.25 1.50

Answer 1

a.	Debt ratio	Total Liabilities / Total Assets	60 %
b.	Times interest earned ratio	Operating Income / Interest Expense	25 x
c.	Current ratio	Current Assets / Current Liabilities	3 : 1
d.	Quick ratio	( Current Assets - Inventory ) Current Liabilities	2.33 : 1
e.	Inventory Turnover Ratio	Cost of Sales / Average Inventory	8 x
f.	Days Sales Outstanding	(365 / Total Revenues ) * Average Accounts Receivable	39.24 days
g.	Total Asset Turnover	Total Revenues / Average Total Assets	2.22 x
h.	Profit Margin on Sales	Net Income / Total Revenues * 100	9.6 %
i.	Return on Total Assets	Net Income / Average Total Assets * 100	21.33 %
j.	Return on Common Equity	Net Income / Average Total Stockholders' Equity * 100	48 %
k.	Price to earnings ratio	Market Price per Share / EPS	80
l	Book Value per Share	Total Stockholders' Equity / Common Shares Outstanding	$ 13.33