The following financial statements summarize the financial conditions for Electr
ID: 2668428 • Letter: T
Question
The following financial statements summarize the financial conditions for Electronics, Inc., an electronics outsourcing contractor, for fiscal year 2002: Unlike Bay Network Corporation in Problem 13.5, the company made profits for several years. Compute the following financial ratios, and interpret the firm's financial health during fiscal year 2002: Debt ratio times-interest-earned ratio Current ratio Quick (acid test) ratio Inventory-turnover ratio Days-sales-outstanding ratio Total-assets-turnover ratio Profit margin on sales Return on total assets Return on common equity Price/earnings ratio, with a share price of $65. Book value per shareExplanation / Answer
(a) Debt Ratio = [Total Debt / Total Assets]
(b) Times-interest-earned ratio = [EBIT / Interest expenses]
EBIT = [Total Revenues – Cost of Sales – other expenses]
EBIT = [$8,391,409 - $7,614,589 - $335,808]
EBIT = $441,012
Interest expenses = $36,479
Times-interest-earned ratio = [$441,012 / $36,479]
Times-interest-earned ratio = 12.08 times
(c) Current Ratio = [Current Assets / Current Liabilities]
Current Assets = $3,994,084
Current Liabilities = $1,113,186
Current Ratio = [$3,994,084 / $1,113,186]
Current Ratio = 3.587 times
(d) Quick (or) Acid-test ratio:
Quick (or) Acid-test ratio = [(Current Assets – Inventory) / Current Liabilities]
Quick (or) Acid-test ratio = [($3,994,084 - $1,080,083) / $1,113,186]
Quick (or) Acid-test ratio = [$2,914,001 / $1,113,186]
Quick (or) Acid-test ratio = 2.62 times
(e) Inventory Turnover ratio = [Cost of Goods Sold / Inventory]
Cost of Goods Sold = $7,614,589
Inventory = $1,080,083
Inventory Turnover ratio = [$7,614,589 / $1,080,083]
Inventory Turnover ratio = 7.05 times
(f) Day’s sales outstanding ratio = [365 days / Inventory turnover]
Day’s sales outstanding ratio = [365 / 7.05]
Day’s sales outstanding ratio = 51.77 days
(g) Total Assets Turnover ratio = [Sales / Total Assets]
Sales = $8,391,409
Total Assets = $4,834,696
Total Assets Turnover = [$8,391,409 / $4,834,696]
Total Assets Turnover = 1.74 times
(h) Profit Margin on Sales = [Net Income / Sales]
Net Income = $293,935
Sales = $8,391,409
Profit Margin on Sales = [$293,935 / $8,391,409]
Profit Margin on Sales = 0.0350 (or) 3.50%
Profit Margin on Sales = 3.50%
(i) Return on Total Assets = [Net Income / Total assets]
Net Income = $293,935
Total Assets = $4,834,696
Return on Total Assets = [$293,935 / $4,834,696]
Return on Total Assets = 0.06079 (or) 6.08%
Return on Total Assets = 6.08%
(j) Return on Common Equity = [Net Income / Common Equity]
Net Income = $293,935
Common Equity = $2,792,820
Return on Common Equity = [$293,935 / $2,792,820]
Return on Common Equity = 0.1052 (or) 10.52%
Return on Common Equity = 10.52%
(k) Price/Earnings ratio = [Price per share / EPS]
Price per share = $65
EPS = $1.19
Price/Earnings Ratio = [$65 / $1.19]
Price/Earnings Ratio = 54 times
(l) Book value per share = [(Shareholder’s equity – Preferred stock) /
Average shares outstanding
Average shares outstanding = [Shareholder’s Equity / Share price]
Average shares outstanding = [$2,792,820 / $65]
Average shares outstanding = 42,966
Book value per share = [($2,792,820 - $0)/ 42,966]
Book value per share = $65
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