Use the above information from the tables to work out the following missing entr
ID: 2564388 • Letter: U
Question
Use the above information from the tables to work out the following missing entries, and then calculate the company’s return on equity. Note: Turnover and the average collection period are calculated using start-of-year, not average, values. (Enter your answers in millions. Round intermediate calculations and final answers to 2 decimal places.)
Long-term debt ratio 0.1 Times interest earned 10.0 Current ratio 1.6 Quick ratio 1.0 Cash ratio 0.6 Inventory turnover 3.0 Average collection period 73 daysExplanation / Answer
Total current liabilities = [accounts payable + notes payable] $25.00 + 40.00 = $65.00 91 Total current assets = total current liab * current ratio = $65 × 1.6 = $104.00 Cash = total current liab * cash ratio = $65 × .6 = $39.00 Accounts receivable + Cash = total current asset * quick ratio = $65.00 × 1.0 = $65.00 Accounts receivable = $65.00 – Cash = $65.00 – 39.00 = $26.00 Inventories = total current asset - cash - accounts receivable = $104.00 – 39.00 – 26.00 = $39.00 Total assets = Total liabilities and shareholders’ equity = $275.00 Net property, plant, equipment = total assets - total current assets = $275.00 – 104.00 = $171.00 Sales = (365 / Average collection period) × Beginning receivables = (365 / 73) × $51 = $255.00 Cost of goods sold = Inventory turnover × Beginning inventory = 3.0 × $43 = $129.00 EBIT = sales-cogs-selling exp-dep = $255.00 – 129.00 – 27.00 – 37.00 = $62.00 Interest = EBIT / Times interest earned = $62 / $10.0 = $6.20 Income before tax = EBIT – Interest expense = $62.00 – 6.20 = $55.8 Tax = Income before tax × .35 = $55.8 × .35 = $19.53 Net income = Income before tax – Tax = $55.8-19.53 = $36.27 Long-term debt + Equity = Total liabilities and equity – Total current liablities = $275.00 – 65 = $201.00 Long-term debt ratio = .1 = Long-term debt / (Long-term debt + Equity) = Long-term debt / $201.00; LTD = $20.10 Shareholders’ equity = Total liabilities and equity – Total current liabilities – Long-term debt = $275.00 – 65.00 – 20.10 = $189.9 INCOME STATEMENT (Figures in $ millions) Net sales 255 Cost of goods sold 129 Selling, general, and administrative expenses 27 Depreciation 37 Earnings before interest and taxes (EBIT) 62 Interest expense 6.2 Income before tax 55.8 Tax (35% of income before tax) 19.53 Net income 36.27 BALANCE SHEET (Figures in $ millions) This Year Last Year Assets Cash and marketable securities 39 $37 Accounts receivable 26 51 Inventories 39 43 Total current assets 104 $131 Net property, plant, and equipment 171 42 Total assets 275 $173 Liabilities and shareholders’ equity Accounts payable $25.00 $20 Notes payable 40 45 Total current liabilities $65.00 $65 Long-term debt 20.1 18 Shareholders’ equity 189.9 90 Total liabilities and shareholders’ equity $275.00 $173
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.