Question

QUESTION

Tanesha D Company Limited makes sales of $6,900,000.00 over the 2019 fiscal period.
If the company states the following financials:

                                                                       

Tanesha D Company Income Statement for the Year Ended December 31, 2019

ASSETS                                               Current Assets      Cash                                            $140,000.00      Marketable securities                 $260,000.00      Accounts Receivable                  $650,000.00      Inventories                                   $800,000.00 Total Current Assets                         $1,850,000.00 Gross Fixed Assets (at cost)             $3,780,000.00 Less accumulated depreciation         $1,220,000.00 Net fixed assets                                 $2,560,000.00 Total assest                                        $4,410,000.00

LIABILITY Current liability        Accounts payables                                             $480,000.00        Notes payables                                                   $500,000.00 Accruals                                                                    $ 80,000.00 Total current liabilities                                             $1,060,000.00 Long-term debt (including financial lease)              $1,560,000.00 Stockholders’ equity      Preferred stock (25,000 share@$2 dividend)      $180,000.00      Common stock (200,000 shares @$3 dividents) $200,000.00      Paid-in capital excess of par                                $810,000.00      Retaining earnings                                               $600,000.00 Total stockhlder’s equity                                          $1,790,000.00      Total liabilities and stockholders’ equity            $4,410,000.00

Tanesha D Company Income Statement for the Year Ended December 31, 2019
Sales Revenue	6,900,000.00
Less Cost of Goods Sold	-4,200,000.00
Gross Profit	2,700,000.00
Less Operating Expenses
Sales Expenses	$750,000.00
General Administrative expense	$1,150,00.00
Lease Expenses	$    210,00.00
Depreciation Expenses	235,000.00
Total Operating Expenses	-2,345,000.00
Earnings before Interest Taxes	355,000.00
Less Interest Expenses	-85,000.00
Net Profit Before tax	$270,000.00
Less Taxes 9rate 40%)	$81,000.00
Net Profit after tax	$189,000.00
Less preferred stock dividends	-10,800.00
Net Income	$178,200.00
Earnings per share (EPS)	1.43

a)         Calculate the current ratio

b)         Calculate the Average collection period

c)         Determine the Time interest earned

d)         Determine the Debt to Equity ratio

e)         Determine the ROE using the DuPont model                             ( 4 Marks)

Answer 1

** Current Ratio = 1.74

Current Ratio = Current Asset / Current Libailities

= 1850000 / 1060000 = 1.74

** Average Collection Period = 34.38 days

Accounts Receivable / Net Sales x 365

= 650000/ 6900000 x 365 = 34.38

** Times of Interest Earned = 4.18

Earnings Before Interest and Taxes / Interest Expense

= 355000 / 85000 = 4.18

** Debt To Equity = 1.46

Total Liability / Total Equity

= 2620000 / 1790000 = 1.46

** Return on Equity = 0.07

ROE (Dupont) = Net Profit Margin x Return on Asset x Financial Leverage

Net Profit Margin = Net Profit / Sales = 178200 / 6900000 = 0.02

Return on Asset = Sales / Asset = 6900000 / 4410000 = 1.56

financial Leverage = Total Asset / Equity = 4410000 / 1790000 = 2.46

Then ROE = 0.02 x 1.56 x 2.46 = 0.07