Question

The balance sheet and income statement for the A. Thiel Mfg. Company are as follows:

Balance Sheet ($000)

Cash

$ 500

Accounts receivable

2,000

Inventories

1,000

Current assets

$3,500

Net fixed assets

4,500

Total assets

$8,000

Accounts payable

$1,100

Accrued expenses

600

Short-term notes payable

300

Current liabilities

$2,000

Long-term debt

2,000

Owners’ equity

4,000

Total liabilities and owners’ equity

$8,000

Income Statement ($000)

Sales (all credit)

$8,000

Cost of goods sold

(3,300)

Gross profit

$4,700

Operating expenses (includes $500 depreciation)

(3,000)

Operating profits

$1,700

Interest expense

(367)

Earnings before taxes

$1,333

Income taxes (40%)

(533)

Net income

$ 800

Calculate the following ratios:

Current ratio

Times interest earned Inventory turnover Total asset turnover Operating profit margin

Operating return on assets Debt ratio

Days in receivables Fixed-asset turnover Return on equity

Answer 1

Current ratio = current assets / current liabilities
= $3,500 / $2,000
= 1.75

Times interest earned = EBIT / Interest expense
= $1,700 / $367
= 4.63

Inventory turnover = Cost of goods sold / Inventory
= $3,300 / $1,000
= 3.3

Total asset turnover = Sales / Total assets
= $8,000 / $8,000
= 1

Operating profit margin = Operating profit / Sales
= $1,700 / $8,000
= 21.25%

Operating return on assets = EBIT / Total assets
= $1,700 / $8,000
= 21.25%

Debt ratio = Total debt / Total assets
= $4,000 / $8,000
= 0.50 or 50%

Days in receivable = (Accounts receivable / credit sales) * 365
= ($2,000 / $8,000) * 365
= 91.25 days

Fixed asset turnover = Sales / fixed assets
= $8,000/ $4,500
= 1.78

Return on equity = Net income / Equity
= $800 / $4,000
= 20%