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This document contains solutions to 4 tasks involving calculations of various financial ratios. Task 1 calculates inventory for a company using its quick ratio and current assets/liabilities. Task 2 calculates debt ratios including debt-to-equity ratio and equity multiplier for a ski company. Task 3 derives profit margin and debt ratio for a timber company using its return on asset and equity ratios. Task 4 calculates income statement and return ratios such as net income, ROA, ROE for Cisco Systems based on its sales, assets, debt and profit margins.

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Kateryna Ternova
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192 views3 pages

18815

This document contains solutions to 4 tasks involving calculations of various financial ratios. Task 1 calculates inventory for a company using its quick ratio and current assets/liabilities. Task 2 calculates debt ratios including debt-to-equity ratio and equity multiplier for a ski company. Task 3 derives profit margin and debt ratio for a timber company using its return on asset and equity ratios. Task 4 calculates income statement and return ratios such as net income, ROA, ROE for Cisco Systems based on its sales, assets, debt and profit margins.

Uploaded by

Kateryna Ternova
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Task 1. Liquidity ratios: Flying Penguins Corp.

has total current assets of


$11,845,175, current liabilities of $5,311,020, and a quick ratio of 0.89. What is its
level of inventory?
Solve:

Quick ratio 
 Current Assets  Inventory  
Current Liabilities
 Inventory  Current Assets  Quick ratio  Current Liabilities 
 Inventory  $11,845,175  0.89  $5,311,020  $7,118,367.2
Answer: $7,118,367.2 .

Task 2. Leverage ratios: Breckenridge Ski Company has total assets of


$422,235,811 and a debt ratio of 29.5 percent. Calculate the company’s
debt-to-equity ratio and the equity multiplier.
Solve:
Total debt  Total assets  Debt ratio 
 Total debt  $422,235,811  0.295  $124,559,564.245.
Total equity  Total assets  Total debt 
 Total equity  $422,235,811  $124,559,564.245  $297,676,246.755.
Total debt
Debt to equity ratio  
Total equity
$124,559,564.245
 Debt to equity ratio   0.418.
$297,676,246.755
Total assets
Equity multiplier  
Total equity
$422,235,811
 Equity multiplier   1.418.
$297,676,246.755
Answer: Debt to equity ratio = 0.418; Equity multiplier = 1.418.

Task 3. DuPont equation: The Rangoon Timber Company has the following
relationships:
Sales/Total assets = 2.23; - it is the total assets turnover.
ROA =9.69%;
ROE = 16.4%.
What are Rangoon’s profit margin and debt ratio?
Solve:
ROA  Profit margin  Total assets turnover 
ROA 0.0969
 Profit margin    4.35%.
Total assets turnover 2.23
ROE  ROA  Equity multiplier 
ROE 0.164
 Equity multiplier    1.69.
ROA 0.0969
Equity 1
Debt ratio  1  1 
Total assets Equity multiplier
1
 Debt ratio  1   0.41.
1.69
Answer: Profit margin = 4.35%; Debt ratio = 0.41.

Task 4. Profitability ratios: Cisco Systems has total assets of $35.594 billion,
total debt of $9.678 billion, and net sales of $22.045 billion. Their net
profit margin for the year was 20 percent, while the operating profit
margin was 30 percent. What are Cisco’s net income, EBIT ROA, ROA, and
ROE?
Solve:
Net income
Net profit margin  
Sales
 Net income  Net profit margin  Sales  Net income  0.2  $22.045  $4.409 billion.
EBIT
Operating profit margin  
Sales
 EBIT  Operating profit margin  Sales  EBIT  0.3  $22.045  $6.6135 billion.
EBIT
EBIT ROA  
Total assets
$6.6135
 EBIT ROA   18.6%.
$35.594
Net income $4.409
ROA    12.4%.
Total assets $35.594
Total equity  Total assets  Total debt 
 Total equity  $35.594  $9.678  $25.916 billion.
Total assets
Equity multiplier  
Total equity
$35.594
 Equity multiplier   1.37.
$25.916
ROE  ROA  Equity multiplier 
 ROE  0.124  1.37  17%.
Answer: Net income = $4.409 billion; EBIT ROA = 18.6%; ROA = 12.4%; ROE
= 17%.

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