Question

Markus Company’s common stock sold for $2.75 per share at the end of this year. The company paid a common stock dividend of $0.55 per share this year. It also provided the following data excerpts from this year’s financial statements

	Ending    Balance		Beginning Balance
Cash	$	35,000	$	30,000
Accounts receivable	$	60,000	$	50,000
Inventory	$	55,000	$	60,000
Current assets	$	150,000	$	140,000
Total assets	$	450,000	$	460,000
Current liabilities	$	60,000	$	40,000
Total liabilities	$	130,000	$	120,000
Common stock, $1 par value	$	120,000	$	120,000
Total stockholders’ equity	$	320,000	$	340,000
Total liabilities and stockholders’ equity	$	450,000	$	460,000

	This Year
Sales (all on account)	$	700,000
Cost of goods sold	$	400,000
Gross margin	$	300,000
Net operating income	$	140,000
Interest expense	$	8,000
Net income	$	92,400

6. What is the debt-to-equity ratio at the end of this year?

7. What is the times interest earned ratio?

8. What is the total asset turnover?

9. What is the company’s operating cycle?

10. What is the average sale period?

Answer 1

6) Debt-to-equity ratio= Total debt/ Total equity

= 130000/ 320000 = 40.625%

7) Time interest earned ratio= Net operating income/ Interest expense

= 140000/ 8000

= 17.5 times

8) Average assets= 460000+450000/ 2= 455000

Total asset turnover= Net sales/ Average assets

= 700000/ 455000= 1.54 times

9) Average receivable= 50000+60000/2=55000

Average collection period= Average receivable/Net sales

= 55000/700000*365= 28.68 days

Operating cycle= 28.68+52.47= 81.15

10) Average inventory= 60000+55000/2= 57500

Average sale period= Average inventory/ COGS*365

= 57500/400000*365= 52.47 days