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3. Construct a balance sheet from the following
information.
Accrued interest payable $4,000
Accumulated depreciation 30,000
Trade accounts payable 10,000
Retained earnings 86,000
Accrued wages 11,000
Work-in-process 5,000
Finished goods 30,000
Plant and equipment 100,000
Cash and marketable securities 10,000
Land 10,000
Accounts receivable 32,000
Allowance for doubtful accounts 2,000
Bank note (due in six months) 15,000
Long-term debt 15,000
Raw materials 7,000
Investments 10,000
Taxes due 1,000
Additional paid-in capital 20,000
$1 par value common stock
20,000 shares authorized
10,000 shares outstanding
4. Determine a firm's earnings per share from the following
information.
Corporate income tax rate 25%
Number of shares outstanding 10,000
Cost of goods sold $60,000
Interest earned 2,400
Selling and administrative expense 15,000
Interest expense 5,000
Sales 100,000
Annual credit sales 90,000
5. Given the following information, construct the statement
of changes in financial position. What happened to the
firm's liquidity position during the year?
Net income $16.7
Decrease in accounts receivable 6.1
Increase in accounts payable 13.6
Sale of bonds 55.1
Dividends 14.8
Retirement of bonds 10.8
Increase in inventory 15.2
Depreciation expense 56.0
Cost of goods sold 72.1
Reduction in income taxes payable 5.0
Sale of stock 0.4
Purchase of plant and equipment 91.0
Beginning cash 1.1
Repurchase of stock 5.6
6. Using the income statement and balance sheet
constructed in (1) and (2), compute the following ratios.
Compare the results with the industry averages. What
strengths and weaknesses are apparent?
RATIO INDUSTRY AVERAGE
Current ratio 2:1
Acid test (quick ratio) 1:1
Inventory turnover
a. annual sales 2.5
b. cost of goods sold 1.2
Receivables turnover
a. annual credit sales 5.0x
b. annual sales 6.0x
Days sales outstanding 75 days
Operating profit margin 26%
Net profit margin 19%
Return on assets 10%
Return on equity 15%
Debt/equity 33%
Debt ratio (debt/total assets) 25%
Times-interest-earned 7.1x
ADDITIONAL INFORMATION:
last year's inventory $40,000
credit sales $90,000
7. An analysis of last year's financial statements
produced the following results.
Current ratio 3.6
Quick ratio 2.2
Days sales outstanding 78.0 days
Inventory turnover 4.4
Fixed asset turnover 6.4
Operating profit margin 11.9%
Net profit margin 6.1%
Return on assets 8.8%
Return on equity 13.7%
Debt ratio 35.5%
Times-interest-earned 9.3X
Payout ratio 41.4%
Use the following data to compute the comparable financial
ratios for next fiscal year. Has the firm's financial
position changed?
Current assets
Cash and short-term investments $ 14,657,000
Accounts receivable 71,873,000
Inventory 56,372,0001
Plant and equipment 26,881,000
Long-term investments and other assets 20,606,000
Total assets $190,389,000
Current liabilities $ 37,481,000
Long-term debt 17,895,000
Equity 135,013,000
Total liabilities and equity $190,389,000
Sales $254,553,000
Cost of goods sold 149,903,000
Selling, administrative, and other expenses 69,609,000
Earnings before interest and taxes 35,041,000
Interest 2,529,000
Taxes 13,972,540
Net income $ 18,540,000
Earnings per share $4.13
Dividends per share $1.80
1 Average inventory = $56,530,000
8. The inventory turnover for an industry is 6 (every two
months) but Slow Corp. turns over its inventory 4 times a
year (every three months). If annual sales are $1,000,000
and the interest cost to carry inventory is 12 percent, what
is the potential savings in interest expense if the firm
achieves the industry for the turnover of its inventory?
9. What is the debt/net worth ratio and the debt to total
assets ratio for a firm with total debt of $600,000 and
equity of $400,000?
10. If the industry average days sales outstanding is 65
days and a firm with sales of $1,034,550 has receivables of
$268,700, how much in interest expense could the firm save
if the receivables turn over as quickly as the industry
average and the cost of carrying the receivables is 9%?
SOLUTIONS TO THE PROBLEMS
