Question

Long-term debt ratio Times interest earned 0.3 10.0 1.4 1.0 0.4 5.0 Current ratio Quick ratio Cash ratio Inventory turnover Average collection period 73 days 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) Net sales Cost of goods sold Selling, general, and administrative expenses 12.00 22.00 Depreciation Earnings before interest and taxes (EBIT) Interest expense Income before tax Tax (35% of income before tax) Net income

Answer 1

Net Sales		$ 180.00
COGS		$ 140.00
SG&A Expenses		$   12.00
Depreciation		$   22.00
EBIT		$      6.00
Interest Expense		$      0.60
Income before tax		$      5.40
Tax (@35%)		$      1.89
Net Income		$      3.51

Assets
Cash and Marketable Sec.				$   22.00	$   22.00
Accounts Receivable				$   33.00	$   36.00
Inventories				$   22.00	$   28.00
Total current assets				$   77.00	$   86.00
Net property, plant and equipment				$   53.00	$   27.00
Total assets				$ 130.00	$ 113.00
Liabilities and shareholder's equity
Accounts Payable				$   25.00	$   20.00
Notes Payable				$   30.00	$   35.00
Total current liabilities				$   55.00	$   55.00
Long term debt				$   39.00	$   22.00
Shareholder's Equity				$   36.00	$   36.00
Total Liabilities and shareholder's equity				$ 130.00	$ 113.00

Workings:

Current Ratio =		Current Assets / Current Liabilities
1.4	=	Current Assets / $ 55
$   77.00	=	Current Assets
Inventory T.O =		COGS / Beginning Inventories
5	=	COGS / 28
$ 140.00	=	COGS
Average collection period =			365 / Accounts Receivable T.O ratio
	73	=	365 / Accounts Receivable T.O ratio
	5	=	Accounts Receivable T.O ratio
Accounts Receivable T.O ratio =			Net Sales / Beginning Accounts Receivables
	5	=	Net Sales / 36
	$ 180.00	=	Net Sales
Long term debt ratio =			Long term debt / Total assets
	0.3	=	Long term debt / $ 130
	39	=	Long term debt
Times interest earned ratio =			EBIT / Interest Expense
	10	=	$ 6 / Interest Expense
	$      0.60	=	Interest Expense
Cash ratio =		Cash and cash equivalents / Current Liabilities
0.4	=	Cash and cash equivalents / $ 55
$   22.00	=	Cash and Cash equivalents
Quick ratio =		Cash and cash equivalents + Accounts Receivable / Current Liabilities
1	=	($ 22 + Accounts Receivable) / $ 55
$   55.00	=	$ 22 + Accounts Receivable
$   33.00	=	Accounts Receivable

Is this correct?