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    Finratioreviewproblemspart 1 Solutionsp 2021

    Uploaded by

    Kevser Bozoğlu
    The document provides information and calculations for 5 different companies/scenarios: 1) Calculates times interest earned and return on equity for a company based on income statement and equity figures. 2) Calculates current ratio and quick ratio for a company based on year-end balance sheet figures. 3) Calculates return on equity for a company given net income as a % of sales, asset turnover, and debt ratio. 4) Calculates average number of days to sell inventory and collect receivables for a company based on income statement and balance sheet figures. 5) Calculates P/EBITDA ratio for a company given stock price, shares outstanding, income statement figures and tax rate.

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    © All Rights Reserved
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    Finratioreviewproblemspart 1 Solutionsp 2021

    Uploaded by

    Kevser Bozoğlu
    4 views2 pages
    The document provides information and calculations for 5 different companies/scenarios: 1) Calculates times interest earned and return on equity for a company based on income statement and equity figures. 2) Calculates current ratio and quick ratio for a company based on year-end balance sheet figures. 3) Calculates return on equity for a company given net income as a % of sales, asset turnover, and debt ratio. 4) Calculates average number of days to sell inventory and collect receivables for a company based on income statement and balance sheet figures. 5) Calculates P/EBITDA ratio for a company given stock price, shares outstanding, income statement figures and tax rate.

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    finratioreviewproblemspart1solutionsp2021

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    The document provides information and calculations for 5 different companies/scenarios: 1) Calculates times interest earned and return on equity for a company based on income statement and equity figures. 2) Calculates current ratio and quick ratio for a company based on year-end balance sheet figures. 3) Calculates return on equity for a company given net income as a % of sales, asset turnover, and debt ratio. 4) Calculates average number of days to sell inventory and collect receivables for a company based on income statement and balance sheet figures. 5) Calculates P/EBITDA ratio for a company given stock price, shares outstanding, income statement figures and tax rate.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    4 views2 pages

    Finratioreviewproblemspart 1 Solutionsp 2021

    Uploaded by

    Kevser Bozoğlu
    The document provides information and calculations for 5 different companies/scenarios: 1) Calculates times interest earned and return on equity for a company based on income statement and equity figures. 2) Calculates current ratio and quick ratio for a company based on year-end balance sheet figures. 3) Calculates return on equity for a company given net income as a % of sales, asset turnover, and debt ratio. 4) Calculates average number of days to sell inventory and collect receivables for a company based on income statement and balance sheet figures. 5) Calculates P/EBITDA ratio for a company given stock price, shares outstanding, income statement figures and tax rate.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    1.

    Following information is given for a firm:

    Net income 500,000


    Income tax expense 150,000
    Interest expense 90,000
    Stockholders’ equity at the beg of the yr 2,000,000
    Stockholders’ equity at the end of the yr 2,400,000

    Based on the information above, calculate:

    a) Times interest earned 8.22


    Operating Income = EBIT = 500,000+150,000+90,000=740,000
    Times Interest Earned = Operating Income/Interest Expense
    =740,000/90,000 = 8.22
    b) Return on stockholders’ equity %22.72
    ROE = Net Income/Average Stockholders’ Equity
    = 500,000/2,200,000 = 22.73%

    2. At the end of the year, the following data is recorded for a given firm:

    Cash 15,000
    Accounts receivable 40,000
    Inventory 95,000
    Prepaid Insurance 7,000
    Long-term Assets 300,000
    Accounts Payable 40,000
    Notes Payable due in 10 months 27,500
    Wages Payable 5,500
    Long Term Liabilities 75,000
    Stockholders’ Equity 180,000

    Based on the information above, calculate the following:

    a) Current ratio 2.15


    Current Assets = 15,000+40,000+95,000+7,000 = 157,000
    Current Liabilities = 40,000+27,500+5,500 = 73,000
    Current Ratio = Current Assets/Current Liabilities
    =157,000/73,000 = 2.15
    b) Quick ratio 0.75
    Quick Ratio = (15,000+40,000)/73,000 = 0.75

    3. An analysis of Nx Corp. Income statement indicates that Net Income corresponds


    to 7.2% of Total Sales. Given that Asset Turnover ratio of Nx Corp. is 1.25 and Total
    Debt ratio is 33%, calculate ROE for Nx Corp. 13.4%
    ROE = Net Income/Equity = (Net Income/Sales)x(Sales/Assets)x(Assets/Equity)
    = (7.2%).(1.25).(100/67)=13.4%

    4. Depeche Fashion Inc. (DF Inc.) realized $785,000 worth of sales. Gross profit
    margin for DF Inc. is calculated as 26%. End of the year balance sheet states
    that DF Inc. has inventory worth $140,000 and accounts receivable worth
    $252,000. On average, how many days pass for the company to sell its
    inventory and collect its accounts receivable? 205 days
    Inventory Turnover = (785,000x0.74)/140,000 = 4.15
    Days of Sales in Inventory = 365/4.15 = 87.9
    Accounts Receivable = 785,000/252,000 = 3.11
    Average Collection Period = 365/3.11 = 117.4
    87.9+117.4 = 205.3 days

    5. P/E ratio of Muse Inc. is 5.2. Number of shares outstanding is 320,000 and
    Muse Inc. ‘s stocks are priced at $6.85. Income statement reveals that tax rate
    of the company is 24%, interest expense and depreciation expense are equal
    to $25,200 and $34,750, respectively. Compute the P/EBITDA ratio for Muse
    Inc. 3.57
    $6.85/Earnings per share = 5.2 => EPS = $1.32 => Net Income = ($1.32).(320,000) =
    $422,400
    EBT = $422,400/0.76 = $555,789
    EBIT=$555,789+$25,200 = $580,989
    EBITDA = $580,989+$34,750 = $615,739
    EBITDA per share = $615,739/320,000 = $1.92
    P/EBITDA = $6.85/$1.92 = 3.57

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