Note: The common shares are trading in the stock market for $15 per share (Pleas

Question

Note: The common shares are trading in the stock market for $15 per share

(Please keep in mind that when a ratio involves both income statement and balance sheet numbers, the balance sheet numbers for the beginning and end of the year must be averaged.)
Calculate the following:

The firm's inventory turnover ratio

The firm's debt-to-equity ratio for 2012

The firm's total asset turnover for 2012

The firm's return on equity ratio for 2012

Flathead Lake Manufacturing Income Statement 2012 Selling and Administrative Expenses 2.200,000 Flathead Lake Manufacturing Comparative Balance Sheets 2011 Total Current Assets 2,050,000 1,400,000 3,200,000 $2,500,000 Total Current Liabilities 1,500,000 1,000,000 $2,300,000 $1,700,000 Total Liabilities Common Stock (200,000 shares) $ 900,000 800,000 3,200,000 $2,500,000 Total Liabilities and Equity

Explanation / Answer

1. Inventory Turnover ratio = 9300000/((530000 + 460000)/2) = 9.39 (2012 sales divided by average inventory of 2011 & 2012)

2. Debt to Equity = (bank loans + long term bonds) / total equity = (480000 + 1500000)/ 900000 = 2.2

3. Total asset turnover = (sales of 2012)/(average of total assets of 2011 & 2012) = 9300000 / (3200000 + 2500000)/2 = 3.2

4. Return on equity = net income/(average of equity) = 225000/((900000+800000)/2) = 26.47%

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