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Homework answers / question archive / Here are simplified financial statements for Phone Corporation in a recent year: INCOME STATEMENT (Figures in $ millions) Net sales Cost of goods sold Other expenses Depreciation Earnings before interest and taxes (EBIT) Interest expense Income before tax Taxes (at 35%) Net income Dividends $ 12,900 3,910 4,132 2,428 $ 2,430 670 $ 1,760 616 $ 1,144 $ 846 BALANCE SHEET (Figures in $ millions) End of Year Start of Year 86 Assets Cash and marketable securities Receivables Inventories Other current assets Total current assets Net property, plant, and equipment Other long-term assets Total assets 2,232 172 8
Here are simplified financial statements for Phone Corporation in a recent year: INCOME STATEMENT (Figures in $ millions) Net sales Cost of goods sold Other expenses Depreciation Earnings before interest and taxes (EBIT) Interest expense Income before tax Taxes (at 35%) Net income Dividends $ 12,900 3,910 4,132 2,428 $ 2,430 670 $ 1,760 616 $ 1,144 $ 846 BALANCE SHEET (Figures in $ millions) End of Year Start of Year 86 Assets Cash and marketable securities Receivables Inventories Other current assets Total current assets Net property, plant, and equipment Other long-term assets Total assets 2,232 172 8.52 S 3,342 19,943 4,186 $ 27,471 S 155 2,430 223 917 S 3,725 19,885 3,740 $ 27,350
Liabilities and shareholders' equity Payables Short-term debt Other current liabilities Total current liabilities Long-term debt and leases Other long-term liabilities Shareholders' equity Total liabilities and shareholders' equity $ 2,534 1,404 796 $ 4,734 7,765 6,148 8,824 $ 27,471 3,010 1,558 772 $ 5,340 7,370 6,119 8,521 $ 27,350 Calculate the following financial ratios for Phone Corporation: (Use 365 days in a year. Do not round intermediate cale Round your final answers to 2 decimal places.) % % % days a. Return on equity (use average balance sheet figures) 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) e Inventory turnover (use start-of-year balance sheet figures) 1 Average collection period (use start-of-year balance sheet figures) 9. Operating profit margin h. Long-term debt ratio (use end-of-year balance sheet figures) Total debt ratio (use end-of-year balance sheet figures) days %
J. Times interest eamed k. Cash coverage ratio 1. Current ratio (use end-of-year balance sheet figures) m. Quick ratio (use end-of-year balance sheet figures)
Return on equity (ROE) = (net profit/ Equity) * 100
Net profit = 1,144
Equity = (8824 + 8521) / 2 = 8672.5 (average)
so ROE = (1144 / 8672.5) * 100 = 13.19%
Return on Asset (ROA) = (Net Profit / Total Assets) *100
Net Profit = 1,144
Total assets = (27471 + 27350) / 2 = 27410.5 (average)
so ROA = (1144 / 27410.5 ) *100 = 4.17%
Return on Capital (ROC) = EBIT / Capital employed * 100
EBIT = 2,430
Capital employed = (Total Assets - Current liability)
Total asset = 27410.5
Current liability = (4734 + 5340) / 2 = 5037 (average)
Capital employed = 27410.5 - 5037 = 22373.5
So, ROC = (2430 / 22373.5) * 100 = 10.86%
Inventory Days = 365 / inventory turnover
Inventory turnover =cost of goods sold / inventory
cost of goods sold = 3,910
inventory = 223 (start of the year figure )
inventory turnover = 3910 / 223 = 17.533
So, Inventory Days = 365 / 17.533 =20.8 = 21 days
Inventory turnover =cost of goods sold / inventory
cost of goods sold = 3,910
inventory = 223 (start of the year figure )
inventory turnover = 3910 / 223 = 17.533
Average collection period = 365 / Receivable turnover
Receivable turnover = (sales/ receivable)
sales = 12,900
receivable = 2430 (start of the year figure)
Receivable turnover = (12900 / 2430) = 5.3086
Average collection period = 365 / 5.3086 = 68.75 = 69 days
Operating profit margin = (operating income / net sale) * 100
Operating Income = Sales– (Operating Expenses + COGS)
sales = 12900
operating expenses = 4132
COGS = 3910
Operating Income = 12900 - ( 4132 + 3910 ) = 4858
Operating profit margin = (4858 / 12900) * 100 = 37.66%
Long Term Debt Ratio (LTD) = (Long-Term Debt? / TotalAssets) * 100
Long term debt = 7,765 (end of the year figure)
total assets = 27471 (End of the year data)
So, LTD = (7765 / 27471) * 100 = 28.26%
Total Debt Ratio = (Total Debt / Total Asset ) * 100
total debt = (long term debt + short term debt) = 7765 + 1404 = 9169 (End of the year data)
total assets = 27471 (End of the year data)
Total debt ratio = ( 9169 / 27471 ) * 100 = 33.38%
Times interest earned = (EBIT / Total interest)
EBIT = 2430
Interest = 670
So, Time interest earned = 3.63 Times
Cash Coverage Ratio (CCR) = (EBIT+Depreciation) / interest
EBIT = 2430
Depreciation = 2428
interest = 670
So, CCR = (2430 + 2428 ) / 670 = 7.25
Current ratio = Current assets / current liability
Current assets = 3342
Current Liability = 4734
So, Current ratio = 3342 / 4734 = 0.71 : 1
Quick Ratio = (Current assets - Current inventory) / Current liabilities
Current assets = 3342
current inventory = 172
Current Liability = 4734
So, Quick Ratio = (3342 - 172) / 4734 = 0.67 : 1