Practice Question 1:

Use the following information to analyze the BJ Company. Calculate any profit measures
deemed necessary in order to discuss the profitability of the company .

BJ Company
Income Statements
For the Years Ended Dec. 31, 2014 and 2015

2014 2015
Net sales Rs.174,000 Rs.167,000
COGS 114,000 115,000
Gross profit 60,000 52,000
General and administrative expenses 54,000 46,000
Operating profit 6,000 6,000
Interest expense (1,000) (1,000)
Earnings before taxes 5,000 5,000
Income taxes 2,000 2,000
Net income 3,000 3,000

Ans
Cost of goods sold percentage 65.5% 68.9%
Gross profit margin 34.5% 31.1%
G&A/Net sales 31.0% 27.5%
Operating profit margin 3.4% 3.6%
Effective tax rate 40.0% 40.0%
Net profit margin 1.7% 1.8%

Management has improved control of COGS. Either prices of the products have been increased
or the management has been able to reduce cost of goods sold. This has resulted in a more
favorable gross profit. Unfortunately, general and administrative expenses have not been
controlled well. While gross profit improved by 3.4%, the increases in other operating expenses
totaled 3.5%, resulting in a drop in operating profit margin. Taxes and interest remained
unchanged. Management should focus on reducing the other operating expenses in the future.
Practice Question 2:

Use the following selected financial data for Happy Valley Co. to answer questions.

Net sales Rs.200,000

Cost of goods sold 90,000
Operating expenses 80,000
Net income 10,000
Total assets 180,000
 Total liabilities 120,000

Calculate (1)debt ratio (2) operating profit margin (3) return on equity (4) net profit
margin (5) Gross Profit ratio (6) Operating expense ratio (7) Assets turnover
Ans

Debt ratio = 67%

Operating profit margin = 15%

Return on equity = 17%

Net profit margin = 5.0%

Gross Profit ratio =

Operating expense ratio = 40%

Assets turnover = 66%

Practice Question 3:

Use the following selected financial information for Cascabel Corporation to answer
questions
Cascabel Corporation
Balance Sheet
December 31, 2015

Assets Liabilities and stockholders' equity

Current assets Current liabilities
Cash 2 Accounts payable 36
Short-term investments 10 Accrued liabilities 25
Accounts receivable 52 Total current liabilities 61
Inventory 57
Other current assets 8 Long-term debt 102
Total current assets 129 Total liabilities 163

Long-term assets Stockholders' equity

Net Plant 195 Common stock (10) 110
Retained earnings 51
Total stockholders' equity 161
Total assets 324 Total liabilities and equity 324

Cascabel Corporation
 Income Statement
For the Year Ended December 31, 2015

Net sales 345

Cost of goods sold 248
Gross profit 97
Operating expenses 74
Operating profit 23
Interest expense 8
Earnings before taxes 15
Income tax expense 4
Net profit 11

Additional information: Market price of stock is Rs.25. Firm declared and paid
dividend 20% on par value of stock.
Ans

Compute following ratios:

(1) Current ratio = 2.11

(2) Quick ratio =
(3) Debt ratio =
(4) Equity ratio =
(5) Inventory turnover in days (use 360 days) =
(6) Receivable turnover in days (use 360 days) =
(7) Earnings per share =
(8) Book value per share =
(9) Interest coverage ratio = 3.78
(10) Gross Profit ratio = 6.67
Practice Question 4:

Belmont Industries

Balance Sheet

As at 31-Dec-01

Assets Liabilities & Equity

Cash $ 100,000 Current Liabilities

Receivables   Long Term Debt  

Inventory   Total Debt

Plant   Common Equity $ 600,000

Total Assets   Total Claims  

Current Ratio 2.5

Average Collection Period 54 days

Total Debt to Total Assets 40%

Total Asset Turnover 2

Inventory Turnover 5

Practice Question 5:
 Illinois Paper Products

Balance Sheet

As at 31-Dec-01

Assets Liabilities & Equity

Cash   Current Liabilities

Receivables   Long Term Debt  

Inventory   Total Debt $ 700,000

Plant   Common Equity

Total Assets   Total Claims  

Total debt to Net Worth 1.4

Total Asset Turnover 3

Inventory Turnover 9

Average Collection Period 20 days

Current Ratio 3.3

Quick Ratio 1.3

Practice Question 5:
The Shannon Corporation has Sales of $750,000. Given the following ratios, fill in the balance

sheet below:

Total asset turnover 2.5 times

Cash to total assets 2.0 percent
Accounts Receivable Turnover 10.0 times
Inventory turnover 15.0 times
Current Ratio 2.0 times
Debt to Total assets 45.0 percent

SHANNON CORPORATION
BALANCE SHEET , 1999

Assets Liabilities & Shareholder's Equity

Cash Total Current Liabilities

Accounts Receivable Long term Debt
Inventory Total Debt
Total Current assets
Net Worth
Fixed Assets
Total Assets Total Liabilities & Equity
Practice Question 6:

The following data are from the U Guessed it Company’s financial statements. This company is a
manufacturer of board games for young adults. The market is fiercely competitive, therefore all
sales ($20 million) for the year 1983 were on credit. Given the following ratios, fill in the balance
sheet below:

Sales to total assets 2 times

Total debt to assets 40%
Current Ratio 3.0 times
Inventory turnover 5.0 times
Average collection period 18 days
Fixed asset turnover 5.0 times

U GUESSED IT CO.
BALANCE SHEET , 1983

Assets Liabilities & Shareholder's Equity

Cash Total Current Liabilities

Accounts Receivable Long term Debt
Inventory Total Debt
Total Current assets
Net Worth
Fixed Assets
Total Assets Total Liabilities & Equity
 Practice Question 7:

Smolira Golf Corp.

Balance Sheet
As at 31-Dec-15
Assets   Liabilities & Equity  
Cash 100000 Current Liabilities  
Receivables   Long Term Debt  
Inventory   Total Debt 200000
Plant   Common Equity  
Total Assets   Total Claims  

Total Debt to Total Assets 0.25

Total Asset Turnover 1.5

Inventory Turnover 7

Average Collection Period 29 days

Current Ratio 2.25

Required: Complete balance sheet

Assignment

SMOLIRA GOLF CORP.

Balance Sheet as of
December 31, 2015

LIABILITIES & OWNER'S

ASSETS EQUITY

Current Assets: Current Liabilities:

Cash Rs.710 Accounts Payable Rs.1,215
Accounts
Receivable 2106 Notes Payable 718
Inventory 4982 Other 230
Total Rs.7,798 Total C L Rs.2,163

Fixed Assets: Long-term debt Rs.4,190

Net plant and
Equipment Rs.18,584 Owner's Equity:
Common Stock and
paid-in surplus Rs.10,000
Retained Earnings Rs.10,029
Total Rs.20,029

Rs.26,38
Total Assets 2 Total Rs.26,382
SMOLIRA GOLF CORP.
Income Statement as on
December 31, 2011

Sales Rs.28,000
Less: Cost of goods sold 11,600
Depreciation 2,140

Earnings before interest and

taxes Rs.14,260
Less: Interest paid 980

Taxable Income Rs.13,280

Taxes (35%) 4,648
Net Income Rs.8,632

Dividend Rs.4000
Addition to retained
Earnings 4,632

Calculate following ratios:

Short-term solvency ratios

a. Current Ratio
b. Quick Ratio
c. Cash Ratio

Asset utilization ratios

d. Total asset turnover

e. Inventory turnover
f. Receivables turnover

Long-term solvency ratios

g. Total debt ratio

h. Debt-equity ratios
i. Equity multiplier
j. Times interest earned ratio

Profitability Ratios:

k. Profit Margin
l. Return on Assets
m. Return on equity
Practice Question 8:

1. The December 31, 2015, balance sheet and income statement for Mayberry Cafeterias, Inc.
are given
a. Compute the specified ratios, and compare them to the industry average (better or
worse).
b. If you were appointed financial manager of the company, what decisions would you
make based on your findings?

Balance Sheet
Cash $ 17 Accounts Payable $7
Marketable Securities 5 Notes Payable 3
Accounts Receivable 3 Taxes Payable 2
Inventory 16 Other Accruals 3
Prepaid Expenses 6 Current Liabilities $ 15
Current Assets $ 47
Long-term debt $ 35
Gross plant and $ 126 Preferred Stock 10
equipment (57) Common Stock 20
Less: Accumulated Dep. 69 Capital contributed in excess
Net Plant and Equipment of par 10

Retained Earnings 26
Total Assets $ 116 Total Liabilities and $ 116
Stockholders’ equity

Income Statement
Net Sales $ 1,072
Cost of Goods sold 921
Gross Profit 152

Selling Expense 86
General and Administrative expense 26
Depreciation 6
Net Income $ 33

Interest Expense 4
Profit Before taxes $ 29

Taxes 12
Net Income
 $ 17
2015 Better or Worse 2015 Industry Average
Ratios to Compute Mayberry (%)
Current 2.86

Quick 2.31

Debt-Equity 0.51

Times interest period 12.36

Average Collection period 1.06

Inventory Turnover 95.71

Fixed-asset turnover 16.15

Operating profit margin 0.036

Net profit margin 0.019

Book return on assets 0.192

Book return on equity 0.271