Question

Rainbow Beauty Goods just provided the following balance sheet and income statement items. Assume that the...

Rainbow Beauty Goods just provided the following balance sheet and income statement items. Assume that the stock price is $10 per share. All data are in thousands of dollars.

Net income                                                                             400

Net plant and equipment                                                        2500

Notes payable                                                                         300

Accounts Payable                                                                   500

Accounts Receivable                                                              600

Addition to retained earnings                                                 250

Cash and equivalents                                                              200

Common stock                                                                       100

Cost of goods sold                                                                  3700

Depreciation                                                                           300

Dividends on common shares                                                150

Gross profit                                                                            2300

Interest expense                                                                      100

Inventories                                                                              700

Long term debt                                                                       1100

Other current liabilities                                                          500

Retained earnings                                                                   1500

Sales                                                                                       6000

Selling, general and administrative expenses                        1200

Taxes                                                                                      300

Total Shares Outstanding                                                       800

    1. Calculate firm’s Current ratio.
    1. Calculate firm’s Quick Ratio
    1. Calculate firm’s ROE.
    1. Calculate firm’s Net Profit Margin.
    1. Calculate firm’s EPS (Earnings per Share).
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Homework Answers

Answer #1
Current ratio = Current assets / Current liabilities
Current ratio = ($600+$200+$700) / ($300+$500+$500)
Current ratio = 1.15385
Quick ratio = (Cash + Accounts receivable) / Current liabilities
Quick ratio = ($600+$200) / ($300+$500+$500)
Quick ratio = 0.61538
Return on equity = Net income / Total equity
Return on equity = $400 / ($250+$100+$1,500)
Return on equity = 21.62162%
Net profit margin = Net profit / Sales
Net profit margin = $400 / $6,000
Net profit margin = 6.66667%
EPS = Net income / Shares outstanding
EPS = $400 / 800
EPS = $0.50

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