Chapter 03 – Analyzing Financial Statements
LG5 3-10 Market Value Ratios Dudley Hill Golf Club’s market-to-book ratio is currently 2.5 times and
the PE ratio is 6.75 times. If Dudley Hill Golf Club’s common stock is currently selling at $22.50 per
share, what is the book value per share and earnings per share?
LG6 3-11 DuPont Analysis If Silas 4-Wheeler, Inc. has an ROE of 18 percent, equity multiplier of 2, and
a profit margin of 18.75 percent, what is the total asset turnover and the capital intensity?
LG6 3-12 DuPont Analysis Last year, Hassan’s Madhatter, Inc. had an ROA of 7.5 percent, a profit
margin of 12 percent, and sales of $25 million. Calculate Hassan’s Madhatter’s total assets.
LG6 3-13 Internal Growth Rate Last year, Lakesha’s Lounge Furniture Corporation had an ROA of 7.5
percent and a dividend payout ratio of 25 percent. What is the internal growth rate?
LG6 3-14 Sustainable Growth Rate Last year, Lakesha’s Lounge Furniture Corporation had an ROE of
17.5 percent and a dividend payout ratio of 20 percent. What is the sustainable growth rate?
intermediate
problems 3-15 Liquidity Ratios Brenda’s Bar and Grill has current liabilities of $15 million. Cash makes up
LG1 10 percent of the current assets and accounts receivable makes up another 40 percent of current
assets. Brenda’s current ratio is 2.1 times. Calculate the value of inventory listed on the firm’s balance
sheet.
3-1
Chapter 03 – Analyzing Financial Statements
LG1-LG2 3-16 Liquidity and Asset Management Ratios Mandesa, Inc., has current liabilities of $8 million,
current ratio of 2 times, inventory turnover ratio of 12 times, average collection period of 30 days,
and credit sales of $64 million. Calculate the value of cash and marketable securities. Assume all
sales are credit sales.
LG2 3-17 Asset Management and Profitability Ratios You have the following information on Els’
LG4 Putters, Inc.: sales to working capital is 4.6 times, profit margin is 20 percent, net income available to
common stockholders is $5 million, and current liabilities are $6 million. What is the firm’s balance
of current assets?
LG2 3-18 Asset Management and Debt Management Ratios Use the following information to complete
LG3 the following balance sheet. Sales are $8.8 million, capital intensity ratio is 2.10 times, debt ratio is
55 percent, and fixed asset turnover ratio is 1.2 times.
Step 1: Capital intensity ratio = 2.10 = Total assets / $8.8m => Total assets = 2.1 x $8.8m = $18.48m
and Total liabilities and equity = $18.48m
3-2
Chapter 03 – Analyzing Financial Statements
LG3 3-19 Debt Management Ratios Tiggie’s Dog Toys, Inc., reported a debt-to-equity ratio of 1.75 times
at the end of 2015. If the firm’s total assets at year–end were $25 million, how much of their assets are
financed with debt and how much with equity?
LG3 3-20 Debt Management Ratios Calculate the times interest earned ratio for LaTonya’s Flop Shops,
Inc., using the following information. Sales are $1.5 million, cost of goods sold is $600,000,
depreciation expense is $150,000, other operating expenses are $300,000, addition to retained
earnings is $146,250, dividends per share is $1, tax rate is 30 percent, and number of shares of
common stock outstanding is 90,000. LaTonaya’s Flop Shops has no preferred stock outstanding.
LG2 3-21 Profitability and Asset Management Ratios You are thinking of investing in Nikki T’s, Inc.
LG4 You have only the following information on the firm at year-end 2015: net income is $250,000, total
debt is $2.5 million, and debt ratio is 55 percent. What is Nikki T’s ROE for 2015?
3-3
Chapter 03 – Analyzing Financial Statements
LG4 3-22 Profitability Ratios Rick’s Travel Service has asked you to help piece together financial
information on the firm for the most current year. Managers give you the following information: sales
are $8.2 million, total debt is $2.1 million, debt ratio is 40 percent, and ROE is 18 percent. Using this
information, calculate Rick’s ROA.
LG5 3-23 Market Value Ratios Leonatti Labs’ year-end price on its common stock is $35. The firm has
total assets of $50 million, debt ratio of 65 percent, no preferred stock, and 3 million shares of
common stock outstanding. Calculate the market-to-book ratio for Leonatti Labs.
LG5 3-24 Market Value Ratios Leonatti Labs’ year-end price on its common stock is $15. The firm has a
profit margin of 8 percent, total assets of $42 million, a total asset turnover ratio of 0.75, no preferred
stock, and 3 million shares of common stock outstanding. Calculate the PE ratio for Leonatti Labs.
LG6 3-25 DuPont Analysis Last year, Stumble-on-Inn, Inc., reported an ROE of 18 percent. The firm’s
debt ratio was 55 percent, sales were $15 million, and the capital intensity was 1.25 times. Calculate
the net income for Stumble-on-Inn last year.
LG6 3-26 DuPont Analysis You are considering investing in Nuran Security Services. You have been
able to locate the following information on the firm: total assets are $24 million, accounts receivable
are $3.3 million, ACP is 25 days, net income is $3.5 million, and debt-to-equity is 1.2 times.
Calculate the ROE for the firm.
Debt-to-equity = 1.2 = Total debt / Total equity = Total debt / (Total assets – Total debt)
3-4
LG6 3-27 Internal Growth Rate Dogs R Us reported a profit margin of 10.5 percent, total asset turnover
of 0.75 times, debt-to-equity of 0.80 times, net income of $500,000, and dividends paid to common
stockholders of $200,000. The firm has no preferred stock outstanding. What is Dogs R Us’s internal
growth rate?
LG6 3-28 Sustainable Growth Rate You have located the following information on Webb’s Heating &
Air Conditioning: debt ratio is 54 percent, capital intensity ratio is 1.10 times, profit margin is 12.5
percent, and dividend payout ratio is 25 percent. Calculate the sustainable growth rate for Webb.
Use the following financial statements for Lake of Egypt Marina to answer Problems 3-29 through 3-32.
Lake of Egypt Marina, Inc.
Balance Sheet as of December 31, 2015 and 2014
(in millions of dollars)
Assets 2015 2014 Liabilities & Equity 2015 2014
Chapter 03 – Analyzing Financial Statements
Lake of Egypt Marina, Inc.
Income Statement for Years Ending December 31, 2015 and 2014
(in millions of dollars)
2015 2014
Net sales (all credit) $ 515 $ 432
LG1-LG7 3-29 Spreading the Financial Statements Spread the balance sheets and income statements of Lake
of Egypt Marina, Inc. for 2015 and 2014.
Spread the balance sheet:
Lake of Egypt Marina, Inc.
Balance Sheet as of December 31, 2015 and 2014
(in millions of dollars)
Assets 2015 2014 Liabilities & Equity 2015 2014
Current assets: Current liabilities:
Chapter 03 – Analyzing Financial Statements
Spreading the income statement:
Lake of Egypt Marina, Inc.
Income Statement for Years Ending December 31, 2015 and 2014
(in millions of dollars)
2015 2014
Net sales (all credit) 100.00% 100.00%
Less: Cost of goods sold 44.66 40.51
Gross profits 55.34 59.49
LG1-LG7 3-30 Calculating Ratios Calculate the following ratios for Lake of Egypt Marina, Inc. as of
year-end 2015.
Lake of Egypt Marina, Inc. Industry
(dollar amounts are in millions for parts a through w.)
Chapter 03 – Analyzing Financial Statements
LG1-LG7 3-31 DuPont Analysis Construct the DuPont ROA and ROE breakdowns for Lake of Egypt
Marina, Inc.
LG1-LG7 3-32 Internal and Sustainable Growth Rates Calculate the internal and sustainable growth rate
for Lake of Egypt Marina, Inc.
LG1-LG7 3-33 Cross-sectional Analysis Using the ratios from question 3-30 for Lake of Egypt Marina,
Inc. and the industry, what can you conclude about Lake of Egypt Marina’s financial
performance for 2015.
advanced 3-34 Ratio Analysis Use the following information to complete the balance sheet below.
problems
LG1-LG5 Current ratio = 2.5 times
Profit margin = 10 percent
Sales = $1,200m
ROE = 20 percent
Long-term debt to Long-term debt and equity = 55 percent
Current assets $ Current liabilities $210m
Fixed assets Long-term debt
Stockholders’ equity
Total Assets $ Total liabilities & equity $
Chapter 03 – Analyzing Financial Statements