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QUESTION 1 Co. XYZ Balance Sheet Assets: Cash and marketable securities                              &nbs

QUESTION 1

Co. XYZ Balance Sheet

Assets:

Cash and marketable securities                                $300,000

Accounts receivable                                                 1,125,000

Inventories                                                               1,837,500

Prepaid expenses                                                          24,000

Total current assets                                                $3,286,500

Fixed assets                                                              2,700,000

Less: accumulated depreciation                               1,087,500

Net fixed assets                                                      $1,612,500

Total assets                                                             $4,899,000

Liabilities:

Accounts payable                                                      $240,000

Notes payable                                                              825,000

Accrued taxes                                                                42,000

Total current liabilities                                           $1,107,000

Long-term debt                                                            975,000

Owner’s equity                                                         2,817,000

Total liabilities and owner’s equity                        $4,899,000

Co. XYZ Income Statement

Net sales (all credit)                                                $6,375,000

Less: Cost of goods sold                                           4,312,500

Selling and administrative expense                           1,387,500

Depreciation expense                                                  135,000

Interest expense                                                          127,000

Earnings before taxes                                               $ 412,500

Income taxes                                                                225,000

Net income                                                                $ 188,000

Common stock dividends                                          $ 97,500

Change in retained earnings                                     $ 90,500

Determine the financial  ratios. interpret the results

  1. Current Ratio
  2. Debt ratio
  3. Average collection period (using a year of 365 days)
  4. Times Interest Earned
  5. Gross Profit Margin
  6. Operational Profit Margin
  7. Net Profit Margin
  8. Inventory Turnover
  9. Fixed Asset Turnove
  10. Gross Profit Margin
  11. Return on Equity
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Homework Answers

Answer #1

Current ratio = current assets / current liabilities
= $3,286,500 / $1,107,000
= 2.97

Debt ratio = Total debt / Total assets
= ($1,107,000 + $975,000) / $4,899,000
= 0.4250 or 42.50%

Average collection period = (Accounts receivable / credit sales) * 365
= ($1,125,000 / $6,375,000) * 365
= 64.41 days

Times interest earned ratio = EBIT / interest expense
= ($412,500 + $127,000) / $127,000
= 4.25

Gross profit margin = (Sales - cost of goods sold) / Sales
= ($6,375,000 - $4,312,500) / $6,375,000
= 32.35%

Note: Post the rest of them separately.

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