Question

Question 8. (15 points total) (Calculating financial ratios) Use the balance sheet and income statement for the J. P. Robard Mfg. Company to calculate the following ratios: Current ratio (Round to two decimal places ) Times interest earned (Round to two decimal places.) Inventory turnover (Round to two decimal places.) Total asset turnover (Round to two decimal places ) Operating profit margin (Round to one decimal places.) Operating return on assets (Round to one decimal places,) Debt ratio (Round to one decimal places.) times times Average collection period (Round to one decimal places) days Fixed asset turnover (Round to two decimal places.) Return on equity (Round to one decimal places.) J. P. Robard Mfg., Inc. Balance Sheet ($000) Cash Accounts receivable Inventories $460 1,920 910 3,290 4,480 S7,770 Current assets Net fixed assets Total assets Accounts payable Accrued expenses Shoet-term notes payable $1.170 570 260 $2,000 1,920 3,850 Current Eabilities Long-term debt Owners' equity Total lEablities and owners' equity J. P. Robard Mfg., Inc. Income Statement (S000) Net sales (all credit) Cost of goods sold $7,990 (3,340) 4,650 (3,000) $1,650 (363) $1,287 (515) $772 Gross profit Operating expenses (inchudes $500 depreciation) Net operating income Interest expense Earnings before taxes Income taxes (40%) Net income

Answer 1

Solution:
	Current ratio	1.65	times
	Times interest earned	4.55	times
	Inventory turnover	3.67	times
	Total asset turnover	1.03	times
	Operating profit margin	20.7	%
	Operating return on assets	21.2	%
	Debt ratio	50.5	%
	Average collection period	87.7	days
	Fixed asset turnover	1.78	times
	Return on equity	20.1	%
Working Notes:
	Current ratio = Current Assets/Current Liabilities
	Current ratio = 3,290/2000
	Current ratio = 1.645
	Current ratio = 1.65
	Times interest earned
	Times Interest Earned = EBIT/Interest Expense
	Times Interest Earned = operating income /Interest Expense
	Times Interest Earned =$1,650 /$363
	Times Interest Earned =4.545454545
	Times Interest Earned =4.55
	Inventory turnover
	Inventory Turnover = COGS/Inventory
	Inventory Turnover = 3340/910
	Inventory Turnover = 3.67032967
	Inventory Turnover = 3.67
	Total asset turnover
	Total Asset Turnover = Sales/Total Assets
	Total Asset Turnover =7,990/7,770
	Total Asset Turnover =1.028314028
	Total Asset Turnover =1.03
	Operating profit margin
	Operating Profit Margin = Operating Earnings/Revenue
	Operating Profit Margin = $1,650/$7,990
	Operating Profit Margin = 0.206508135
	Operating Profit Margin = 20.7%
	Operating return on assets
	Operating Return on Assets = EBIT/Average total assets
	Operating Return on Assets =operating income /Average total assets
	Operating Return on Assets =$1,650 /7,770
	Operating Return on Assets =0.212355212
	Operating Return on Assets =21.2%
	Debt ratio
	Debt Ratio = Total Debt / Total Assets
	Debt Ratio =(Current liabilities + Long term debt)/ Total Assets
	Debt Ratio =($1,920 + $2,000)/ $7,770
	Debt Ratio =0.504504505
	Debt Ratio =50.5%
	Average collection period
	Average Collection Period = (Average Account Receivable)/(Annual Sales/365)
	Average Collection Period = (1920)/(7990/365)
	Average Collection Period = 87.70963705
	Average Collection Period = 87.7 days
	Fixed asset turnover
	Fixed asset turnover = Net Sales/Average fixed assets
	Fixed asset turnover = 7990/4,480
	Fixed asset turnover = 1.783482143
	Fixed asset turnover = 1.78
	Return on equity
	Return to Equity = Net Income/Shareholder’s Equity
	Return to Equity = 772/3,850
	Return to Equity = 0.200519481
	Return to Equity = 20.1%
Please feel free to ask if anything about above solution in comment section of the question.