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Homework answers / question archive / The following information for Ford Company for the year 2019 has been assembled: (6 marks) Market value at December 31, 2019
Market value at December 31, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $600,000
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $100,000
Debt ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40%
Return on sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10%
Asset turnover . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.0
You are required to compute the following information:
a. Total assets b. Sales
c. Net income d. Price-earnings ratio
kindly explain also
ANSWER We will calculate all the problems with the help of the following formulas :
a) Debt Ratio = Total debt/Total Assets
40% =Total Liabilities/Total Assets
.40 = $100000/Total Assets
Total Assets= $100000/.40
Total Assets= $250,000
b) Asset Turnover Ratio= Net Sales/Total Assets
2= Net Sales/$250,000
Net Sales= 2*$250,000
Net Sales= $ 500,000
c) Return on Sales = Net Income/ Net Sales
.10 = Net Income/$500,000
Net Income = .10*$500,000
Net Income = $ 50000
d) Price-earnings ratio = Market Price per share/Earnings per share
Price-earnings ratio = Total Market Value/Net Income
Price-earnings ratio = $600,000/$50,000
Price-earnings ratio = 12 times
