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EXERCISE CHAPTER 3 BE Corp 2018 and 2019 Balance Sheets abilities and Oy Equity 2018 2019 2018 2019 Current Assets Current Liabilities Cash 21
EXERCISE CHAPTER 3 BE Corp 2018 and 2019 Balance Sheets abilities and Oy Equity 2018 2019 2018 2019 Current Assets Current Liabilities Cash 21.860 22050 Aec. Pavable 19000 Act. Receivables 11.316 13.850 Notes Payable 10.000.000 Inventory 23.080 24450 Other 11.15 Total 56260 60 550 Total 38,9634335 Long-term dhe 75.000 85.000 Ders' equity Cm Stock pain 500 000 Fixed Assets Accumulated Retained Earnings 15_6167.380 Net Plant & lapien 54.06.29 Total 176 1925 Total Assets 290.J2N 321.075 Total Liabilities & liquity 200021.025 Corp 2019 Income Statement Sales NOS RO Cast of Good Sold 210015 Depreciation 26, EBIT OROS Interest 1190 Taxable income 56,114 Taxes (35%) 19.646 Net Income Dividends 20,000 Related Famis 16415 1. Calculating Financial Ratios. Find the following financial ratios for GE Corp. (Use year-end figures rather than average values where appropriate): i. Short-term solvency ratios: a. Current ratio b. Quick ratio c. Cash ratio ii. Asset Turnover Ratios: d. Total asset turnover e. Inventory turnover 1. Receivables turnover iii. Long-term solvency ratios: g. Total debt ratio h. Debt-equity ratio i. Equity multiplier j. Times interest earned ratio k. Cash coverage ratio iv. Profitability ratios: 1. Profit margin m. Return on assets n. Retum on equity
Expert Solution
(i) Short-term Solvency Ratios
a. Current ratio = Current Assets / Current Liabilities
2019 = $60,550 / $43,235 = 1.40
2018 = $56,260 / $60,550 = 1.44
b. Quick ratio = Liquid Assets / Current Liabilities (Liquid Assets = Current Assets - Inventory)
2019 = $35,900 / $43,235 = 0.83
2018 = $33,176 / $60,550 = 0.85
c. Cash ratio = (Cash and Cash Equivalents + Marketable Securities) / Current Liabilities
2019 = $22,050 / $43,235 = 0.51
2018 = $21,860 / $60,550 = 0.56
(ii) Asset Turnover Ratios
d. Total asset turnover ratio = Turnover / Total Asset = $305,830 / $321,075 = 0.95
Total asset should be 2019 figure and need not be average of 2018 and 2019 as specifically instructed in question.
e. Inventory turnover ratio = Turnover / Inventory = $305,830 / $24,650 = 12.41
Inventory should be 2019 figure and need not be average of 2018 and 2019 as specifically instructed in question.
f. Receivables turnover ratio = Turnover / Receivables = $305,830 / $13,850 = 22.08
Receivables should be 2019 figure and need not be average of 2018 and 2019 as specifically instructed in question.
(iii) Long-term Solvency Ratios
g. Total debt ratio = Debt / Total Assets
2019 = $85000 / $321,075 = 0.26
2018 = $75000 / $290,328 = 0.26
h. Debt equity ratio = Debt / Equity
2019 = $85000 / $192,840 = 0.44
2018 = $75000 / $176,365 = 0.43
i. Equity multiplier = Total Assets / Equity
2019 = $321,075 / $192,840 = 1.66
2018 = $290,328 / $176,365 = 1.65
j. Times interest earned ratio = Earnings Before Interest and Tax (EBIT) / Interest
$68,045 / $11,930 = 5.70
k. Cash coverage ratio = (Earnings Before Interest and Tax (EBIT) + Depreciation) / Interest
($68,045 + $26,850) / $11,930 = 7.95
(iv) Profitability ratios
l. Profit Margin = Net Profit / Sales = $36,475 / $305,830 = 0.1193 or 11.93%
m. Return on Assets = EBIT (1 - t) / Total Assets = [$68,045 (1 - 0.35)] / $321,075 = 0.1378 or 13.78%
n. Return on Equity = Profit After Tax / Equity = $36,475 / $192,840 = 0.1891 or 18.91%
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