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Tutorial 3

This document contains 7 exercises providing financial calculations related to ratios like return on assets (ROA), return on equity (ROE), equity multiplier, debt-to-assets ratio, and free cash flow. The exercises calculate values for these ratios given information about a company's profits, assets, sales, debt levels, and financial statements.

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Lê Thiên Giang 2KT-19
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18 views

Tutorial 3

This document contains 7 exercises providing financial calculations related to ratios like return on assets (ROA), return on equity (ROE), equity multiplier, debt-to-assets ratio, and free cash flow. The exercises calculate values for these ratios given information about a company's profits, assets, sales, debt levels, and financial statements.

Uploaded by

Lê Thiên Giang 2KT-19
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Exercise 1. Bartley Barstools has an equity multiplier of 2.

4, and its assets are financed


with some combination of long-term debt and common equity. What is its debt-to-assets
ratio?

Exercise 2. Doublewide Dealers has an ROA of 10%, a 2% profit margin, and an ROE of
15%. What is its total assets turnover? What is its equity multiplier?
Given: ROA = 10%, Profit margin = 2%, ROE = 15%
ROA = Profit margin x Asset Turnover
Therefore,
Asset Turnover = ROA / Profit margin
= 10 / 2 = 5%
ROE = Profit margin x Asset Turnover x Equity multiplier
15 = 2 x 5 x Equity Multiplier
15 / 10 = Equity Multiplier
Equity Multiplier = 1.5

Exercise 3. A firm has a profit margin of 2% and an equity multiplier of 2.0. Its sales are
$100 million, and it has total assets of $50 million. What is its ROE?
PM= 2%, EM= 2, sales= $100 million, TA= $50 million
ROE= PM TATO EM
ROE= PM (sales / TA) EM
= 2 (100 / 50) 2= 8%

Exercise 4. Midwest Packaging’s ROE last year was only 3%; but its management has
developed a new operating plan that calls for a debt-to-assets ratio of 60%, which will
result in annual interest charges of $300,000. The firm has no plans to use preferred
stock. Management projects an EBIT of $1,000,000 on sales of $10,000,000, and it
expects to have a total assets turnover ratio of 2.0. Under these conditions, the tax rate
will be 34%. If the changes are made, what will be the company’s return on equity?
Exercise 5. Based on the below financial statement, do the following tasks.
a. What was net operating working capital for 2010 and 2011?
b. What was Bailey’s 2011 free cash flow?

a. Net working capital= Current Assets - Current Liabilities


2008
$72,125 - $25,100 = $47,025
2007
$59,000 - $20,150 = $38,850

b. Free cash flows


FCF = Net income+ Depreciation- increase in working capital
FCF = $22,350+$5000-($47,025-$38,850)=$19,175

Exercise 6.
Exercise 7:

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