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Question 8. (Calculating financial ratios) Use the balance sheet and income statement for the J. P....

Question 8. (Calculating financial ratios) Use the balance sheet and income statement for the J. P. Robard Mfg. Company to calculate the following ratios: (Show all work.)

Current ratio (Round to two decimal places.) _________

Times interest earned (Round to two decimal places) ________ times

Inventory turnover (Round to two decimal places.) __________ times

Total asset turnover (Round to two decimal places.) __________

Operating profit margin (Round to one decimal places.) ___________%

Operating return on assets (Round to one decimal places.) ____________%

Debt ratio (Round to one decimal places.) ________________%

Average collection period (Round to one decimal places.) ___________ days

Fixed asset turnover (Round to two decimal places.) ____________

Return on equity (Round to one decimal places.) _____________ %

***************************************************************************

JP Robard Mfg., Inc

Balance Sheet ($000)

Cash $460

Accounts Receivable 1,920

Inventories 910

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Current assets $3,290

Net fixed assets 4,480

------------

Total assets $7,770

=======

Accounts Payable $1,170

Accrued expenses 570

Short-term notes payable 260

----------

Current liabilities $2,000

Long-term debt 1,920

Owners' equity 3,850

---------

Total liabilities & owners equity $7,770

======

***********************************************************************

JP Robard Mfg., Inc.

Income Statement ($000)

Net sales (all credit)    $7,990

Cost of goods sold (3,340)

----------

Gross profit $4,650

Operating expenses (3,000)

(includes $500 depreciation) ------------

Net income $1,650

Interest expense (363)

-----------

Earnings before taxes $1,287

Income taxes (40%) (515)

----------

Net income $772

=======

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Homework Answers

Answer #1

Answer a.

Current Ratio = Current Assets / Current Liabilities
Current Ratio = $3,290 / $2,000
Current Ratio = 1.65

Answer b.

Times Interest Earned = EBIT / Interest Expense
Times Interest Earned = $1,650 / $363
Times Interest Earned = 4.55 times

Answer c.

Inventory Turnover = Cost of Goods Sold / Inventories
Inventory Turnover = $3,340 / $910
Inventory Turnover = 3.67 times

Answer d.

Total Asset Turnover = Sales / Total Assets
Total Asset Turnover = $7,990 / $7,770
Total Asset Turnover = 1.03 times

Answer e.

Operating Profit Margin = EBIT / Sales
Operating Profit Margin = $1,650 / $7,990
Operating Profit Margin = 0.2065 or 20.65%

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