Question

Fader Corp.’s 2014 and 2015 SFP and 2015 SCI are as follows (in millions of dollars, except per share amounts):

Condensed Statement of Financial Position

31 December	2015			2014
ASSETS
Cash	$	13		$	24
Investments (short-term)		4			7
Accounts receivable (net of allowance)		25			22
Inventory (FIFO)		39			47
Prepaid expenses		5			3
Investments, long-term		54			54
Property, plant, and equipment (net of accumulated
depreciation of $29 (2014), $37 (2015))		92			82
Total assets	$	232		$	239
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable		15			8
Accrued liabilities		4			4
Notes payable, long-term		27			30
Common shares, no par (50,000 shares outstanding)		39			39
Retained earnings (including 2014 and 2015 income)		147			158
Totals	$	232		$	239

Statement of Comprehensive Income, 2015
Sales revenue (1/3 were credit sales)	$	275
Investment revenue		29
Cost of goods sold		(93	)
Distribution expense		(44	)
Administrative expense (includes $33 of depreciation)		(42	)
Interest expense		(27	)
Income tax expense (the tax rate is 40%)		(20	)
Net income and comprehensive income	$	78
Additional information:
Cash flow from operations		30

Required:

Compute the 2015 ratios that measure: (Use 365 days in a year. Do not round intermediate calculations.)

1. Profitability (after tax only)
2. Efficiency
3. Solvency
4. Liquidity

a.	Ratios that measure profitability
	Return on long-term capital (after tax)		%
	Return on assets (after tax)		%
	Return on common owners’ equity		%
	Operating margin (before tax)		%
	Return on gross assets (before tax)		%
b.	Ratios that measure efficiency:
	Asset turnover		times
	Accounts receivable turnover		times
	Average collection period of accounts receivable		days
	Inventory turnover		times
c.	Ratios that measure solvency:
	Debt:equity		%
	Long-term debt: capitalization		%
	Debt: capital employed		%
	Debt: total assets		%
	Times-interest-earned
	Times-debt-service-earned
d.	Ratios that measure liquidity:
	Current ratio
	Quick ratio
	Defensive interval		days

Answer 1

Fo a) Return on Capital Employed after Tax = EBI / Total Assets- Current Liabilities

= Net Income + Int Exp / Tota Assets - Current Liablities(Accont payable , Accrued Liablity)

   = 78+27/ 232-15-4

= 105/213 = 0.49

In % = 49%

b) Return on Assets (after Tax) = Net Income / Total assets

= 78/ 232 = 0.3362

In % =33.62%

C) Return on Common Owners Equity = Net Income - Dividend to Prefernce Shareholders / Average common stockholders equity(icludes Reatined earnings)

= 78-0 / (39+39)/2+(147)

=78/186

=0/4193

In % = 41.93%

Retained Eraning includes 2014 figures so we have taken 147 only.

d) Oprating Margin = EBIT / Net Sales

EBIT = Net Income + Int Exp + Tax

=78+27+20/ 275 = 125/275 = 45.45%