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Midterm Exams Question Copy-1

This document provides financial ratio information for a company in Year 1 and Year 2. It includes assets, liabilities, equity, income statement figures, and calculations of various financial ratios. Ratios such as current ratio, quick ratio, debt to equity, gross margin, inventory turnover, and profit margin are presented for both years. The document also includes a sample income statement with sales of $800,000 in Year 1 and instructions to use the degree of operating leverage (DOL), degree of financial leverage (DFL), and degree of total leverage (DTL) to forecast income statement figures in Year 2.

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Marian Augelio Polanco
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86 views4 pages

Midterm Exams Question Copy-1

This document provides financial ratio information for a company in Year 1 and Year 2. It includes assets, liabilities, equity, income statement figures, and calculations of various financial ratios. Ratios such as current ratio, quick ratio, debt to equity, gross margin, inventory turnover, and profit margin are presented for both years. The document also includes a sample income statement with sales of $800,000 in Year 1 and instructions to use the degree of operating leverage (DOL), degree of financial leverage (DFL), and degree of total leverage (DTL) to forecast income statement figures in Year 2.

Uploaded by

Marian Augelio Polanco
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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FINANCIAL RATIOS

Year 2 Year 1
Cash 72,000.00 Accounts Payable
Accounts Receivable 390,000.00 Accrued Expenses
Marketable Securities 100,000.00 80,000.00 Current Liabilities
Inventories 894,000.00 Long-term Notes Payable
Current Assets Total Liabilities
Building(net) 238,000.00 129,000.00 Common Stock
Machineries(net) 142,000.00 Retained Earnings
Land 61,000.00 61,000.00 Total Equity
Total Assets 1,588,000.00 Total Liabilities and Equity

Sales DO NOT TYPE THE RATIOS MANUALLY W


Less: Cost of Sales REFERENCE THE CELL ITSELF and USE EX
Gross Margin 710,000.00
Selling and General Exp (236,320.00) Current Ratio
Contribution Margin Quick Ratio
Depreciation Expense Cash Ratio
Miscellaneous Expenses (60,000.00) Debt to Equity Ratio
Earnings Before Interest and Taxes Long-term Debt to Equity R
Interest Expense Debt to Assets Ratio
Earnings Before Taxes Gross Margin Ratio
Taxes (40%) Acc Rec Turnover
Net Income 108,408.00 Inventory Turnover
Profit Margin Ratio
Total Asset Turnover
DOL
DFL
Year 2 Year 1
200,000.00
270,000.00 525,400.00
470,000.00
232,000.00
702,000.00
575,000.00 327,000.00
363,600.00
690,600.00
1,836,000.00 1,588,000.00

HE RATIOS MANUALLY WHEN SOLVING;


CELL ITSELF and USE EXCEL FORMULAS
Year 2 Year 1
2.99 1.89
0.74
0.37
0.62 1.30
0.20
0.38

11.77
4.32
0.03
2.51
1.86
1.41
DOL, DFL, DTL

% Increase in sales in Year 2 --------------> Y1 x Inc % Inc $/Y1 Inc $/Y1


DOL DFL DTL Year 1 Year 2 increase $ increase % increase %
Sales 800,000.00
Less: Variable Costs (650,000.00)
Contribution Margin 150,000.00
Less: Fixed Costs (110,000.00) x DOL 3.75
Earn. Bef. Int. and Taxes 40,000.00
Less: Interest Expense (24,000.00) (24,000.00)
Earnings Before Taxes 16,000.00
Less: Taxes (20%) (3,200.00) x DFL ???
Net Income 12,800.00 60,800.00

Use the DOL DFL and DTL to forecast the income statement in year 2.
The Interest Expense and Net Income in Year 2 are given, and should be consistent with your forecast.
DO NOT TYPE THE RATIOS MANUALLY WHEN SOLVING;
REFERENCE THE CELL ITSELF and USE EXCEL FORMULAS
DOL DFL DTL
3.75 9.38

our forecast.

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