Question

Here are simplified financial statements for Phone Corporation in a recent year:

INCOME STATEMENT
(Figures in $ millions)
Net sales	$	13,500
Cost of goods sold		4,260
Other expenses		4,147
Depreciation		2,638
Earnings before interest and taxes (EBIT)	$	2,455
Interest expense		705
Income before tax	$	1,750
Taxes (at 30%)		525
Net income	$	1,225
Dividends	$	896

  

BALANCE SHEET
(Figures in $ millions)
	End of Year				Start of Year
Assets
Cash and marketable securities	$	93			$	162
Receivables		2,582				2,570
Inventories		207				258
Other current assets		887				952
Total current assets	$	3,769			$	3,942
Net property, plant, and equipment		20,013				19,955
Other long-term assets		4,256				3,810
Total assets	$	28,038			$	27,707
Liabilities and shareholders’ equity
Payables	$	2,604			$	3,080
Short-term debt		1,439				1,593
Other current liabilities		831				807
Total current liabilities	$	4,874			$	5,480
Long-term debt and leases		6,022				6,117
Other long-term liabilities		6,218				6,189
Shareholders’ equity		10,924				9,921
Total liabilities and shareholders’ equity	$	28,038			$	27,707

Calculate the following financial ratios for Phone Corporation: (Use 365 days in a year. Do not round intermediate calculations. Round your final answers to 2 decimal places.)

a. Return on equity (use average balance sheet figures) 12.00 % b. Return on assets (use average balance sheet figures) % c. Return on capital (use average balance sheet figures) % d. Days in inventory (use start-of-year balance sheet figures) days e. Inventory turnover (use start-of-year balance sheet figures) f. Average collection period (use start-of-year balance sheet figures) days g. Operating profit margin % h. Long-term debt ratio (use end-of-year balance sheet figures) i. Total debt ratio (use end-of-year balance sheet figures) j. Times interest earned k. Cash coverage ratio l. Current ratio (use end-of-year balance sheet figures) m. Quick ratio (use end-of-year balance sheet figures)

Answer 1

return on equity = net profit/average equity	1225/10422.5	11.75%
net profit		1225
average equity =(beginning balance+year end balance)/2	(10924+9921)/2	10422.5
return on assets = net profit/average of total assets	1225/27872.5	4.40%
net profit		1225
average of total assets =(beginning balance+year end balance)/2	(28038+27707)/2	27872.5
return on capital =(net income-dividend)/(long term debt+total of equity)	(1225-896)/22695.5	1.45%
average of capital employed = (beginning balance+year end balance)/2	(23164+22227)/2	22695.5
end of the year total of capital employed = long term debt+other long term liabilities+total of shareholders equity-	23164
startof the year total of capital employed = long term debt+other long term liabilities+total of shareholders equity-	22227
Days in Inventory =365/Inventory turnover ratio	365/16.51	22.11
Inventory turnover ratio = cost of goods sold/start of year inventory balance	4260/258	16.511628
average collection period = 365/accounts receivables turnover ratio	365/3.25	112.31
accounts receivables turnover ratio = sales/start of accounts receivables balance	13500/2570	5.2529183
operating profit margin = operating profit/sales	2455/13500	18.19%
long term debt ratio = total of long term debt/total of assets	12240/28038	0.44
total of long term debt	6022+6218	12240
total of assets		28038
total debt ratio = total of liabilities/total of assets	17720/28038	0.63
total of liabilities	5480+6022+6218	17720
total of assets		28038
Times interest earned = EBIT/interest	2455/705	3.48
cash overage ratio = cash and cash equivalents/total of liabilities	93/4874	0.02
current ratio = total of current assets/ total of current liabilities	3769/4874	0.77
Quick ratio = (total of current assets-inventory)/total of current liabilities	(3769-207)/4874	0.73