Q12. Exhibit 12.1 The balance sheet and income statement shown below are for Pet
ID: 2749851 • Letter: Q
Question
Q12. Exhibit 12.1 The balance sheet and income statement shown below are for Pettijohn Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over. Balance Sheet (Millions of $) Assets 2015
Cash and securities $ 1,554.0
Accounts receivable 9,660.0
Inventories 13,440.0
Total current assets $24,654.0
Net plant and equipment 17,346.0
Total assets $42,000.0
Liabilities and Equity
Accounts payable $ 7,980.0
Notes payable 5,880.0
Accruals 4,620.0
Total current liabilities $18,480.0
Long-term bonds 10,920.0
Total debt $29,400.0
Common stock 3,360.0
Retained earnings 9,240.0
Total common equity $12,600.0
Total liabilities and equity $42,000.0
Income Statement (Millions of $) 2015
Net sales $58,800.0
Operating costs except depr'n $54,978.0
Depreciation $ 1,029.0
Earnings bef int and taxes (EBIT) $ 2,793.0
Less interest 1,050.0
Earnings before taxes (EBT) $ 1,743.0
Taxes $ 610.1
Net income $ 1,133.0
Other data: Shares outstanding (millions) 175.00
Common dividends $ 509.83
Int rate on notes payable & L-T bonds 6.25%
Federal plus state income tax rate 35%
Year-end stock price $77.69
What is the firm’s current ratio, quick ratio, inventory turnover ratio, EBITDA coverage ratio and ROE ?
Explanation / Answer
Answer
Current Ratio= Current Assets/Current Liabilities
Current Ratio = $24,654/$18,480 = 1.33
Quick ratio =Current Assets-Inventories/Current Liabilities
Quick Ratio = (24,654-13,440)/18,480 = 0.61
Inventory turnover ratio = Sales/Inventory
Inventory Turnover Ratio = 58,800/13,440 = 9.99 times = 10 times
EBITDA coverage ratio = EBITDA/Interest Expense = 3,822/1050 = 3.64 times
ROE = Net Income/Shareholders Equity
ROE = 1,133/3,360 = 0.34
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