Question

Complete the following:

1. You will need financial statements and information to make the required calculations.

Click on the link below to access the handout with the necessary information.

INCOME STATEMENT –
Fiction, INC.
Sales 2,000,000
Cost of goods sold 1,400,000
Gross profit 600,000
Operating expenses
Selling & marketing 100,000
Administrative 80,000
Depreciation 50,000
Total operating expenses 230,000
Operating income (operating profits) 370,000
Interest expense 50,000
Earnings before tax 320,000
Income taxes 80,000
Net income 240,000
Total number of shares outstanding = 100,000
Current market price = $41.40
Earnings per share (EPS) = $2.40
Dividends per share = $1.10

BALANCE SHEET–
Fiction, INC. Assets Cash 150,000
Accounts receivables 250,000
Inventory 500,000
Total current assets 900,000
Gross plant & equip 2,200,000
Less accumulated depreciation 650,000
Net property, plant, & equip. 1,550,000
Total assets 2,450,000
Debt & Equity Accounts payable 145,000
Accruals 90,000
S.T. Notes 310,000
Total current liabilities 545,000L
Long-term debt 625,000
Total debt 1,170,000
Common stockholder’s equity
Common stock –par value 100,000
Paid-in capital 300,000
Retained earnings 880,000
Total common equity 1,280,000
Total liabilities & equity 2,450,000

    2. Use a spreadsheet software program (such as Microsoft® Excel) to calculate and report the following information:

• What is the current ratio of this firm?
• What is the quick ratio of this firm?
• What is the inventory turnover ratio of this firm?
• What is the receivables turnover of this firm?
• What is the total asset turnover of this firm?
• What is the times interest earned (TIE) of this firm?
• What is the total debt ratio of this firm?
• What is the return on equity (ROE) of this firm?
• What is the return on assets (ROA) of this firm?
• What is the market-to-book ratio of this firm?
• What is the price-to-earnings (P/E) ratio of this firm?

Answer 1

Solution:

a)Calculation of Current ratio

Current ratio=Current Assets/Current liablities

=900,000/545,000

=1.65

b)Calculation of quick ratio

Quick ratio=Current Assets-Inventory-Prepaid Expenses/Current liablities

=(900,000-500,000-0)/545,000

=0.734

c)Calculation of Inventory turnover ratio

Inventory turnover ratio=Cost of goods sold/Average Inventory

Since the opening balance of Inventory is not available,hence Inventory turnover ratio is calculated on the basis of closing inventory.

Inventory Turnover Ratio=1,400,000/500,000

=2.8

d)Calculation of Receivables turnover

Receivables turnover=Net Credit Sales/Average Accounts receivable

Since,nothing is given about the credit sales,hence it is assumed that all sales are on credit basis

Receivables turnover=2,000,000/250,000

=8 times