(Figures in s millions) Net sales Cost of goods sold Other expenses Depreciation
ID: 2809803 • Letter: #
Question
(Figures in s millions) Net sales Cost of goods sold Other expenses Depreciation Earnings before interest and taxes (EBIT) Interest expense Income before t Taxes (at 30%) Net income Dividends s 12,500 3,710 4,112 2,308 $ 2,370 650 $ 1,720 516 $ 1,204 $ 806 ax BALANCE SHEET (Figures in $millions) End of Year Start of Year Assets 82 151 2,350 203 897 $3,098 3,601 19,845 4,1463,700 $ 27,14727,146 Cash and marketable securities Receivables Inventories Other current assets 2,032 152 832 Total current assets Net property, plant, and equipment Other long-term assets 19,903 Total assets Liabilities and shareholders' equity $2,494 $2,970 1,538 752 $ 4,654 5,260 8,086 6,079 7,721 $ 27,147 27,146 Payables Short-term debt Other current liabilities 1,384 776 Total current liabilities Long-term debt and leases Other long-term liabilities Shareholders' equity 8,761 6,108 7,624 Total liabilities and shareholders' equity Calculate the following financial ratios for Phone Corporation: (Use 365 days in a year. Do not round intermediate calculations. Round your final answers to 2 decimal places.)Explanation / Answer
Solution :
As required only the following ratios are being solved:
b. Return on Equity ( use average balance sheet figures )
c. Return on Capital ( use average balance sheet figures )
m. Quick ratio ( use end -of - year balance sheet figures )
b. Return on Assets ( use average balance sheet figures )
Return on Assets is calculated Using the following formula:
= Net Income after Tax / Average Assets
As per the Information given in the question we have
Net Income after Tax = $ 1,204 million
Average assets = (Assets at start of year + Assets at the end of the year ) / 2
= ( $ 27,147 + $ 27,146 ) / 2 = ( $ 54,293/ 2 ) = $ 27146.50
Thus Return on Assets = $ 1,240 / $ 27,146.50 = 0.044352 = 4.44 %
c. Return on Capital employed
The formula for calculating Return on Capital employed is as follows
= EBIT / Capital employed
As per the information given in the question we have
EBIT = $ 2,370 Million
Capital employed = Average Assets - Average Current Liabilities
Average Assets = (Assets at start of year + Assets at the end of the year ) / 2
= ( $ 27,147 + $ 27,146 ) / 2 = ( $ 54,293/ 2 ) = $ 27146.50 million
Average Current liabilities = (Current liabilities at start of year + Current liabilities at the end of the year ) / 2
= ( 4,654 + 5,260 ) / 2 = $ 4,957 million
Average Capital employed = $ 27,146.50 - $ 4,957 = $ 22,189.50 million
Thus, Return on capital employed = $ 2,370 / $ 22,189.50 = 10.68 %
m. Quick Ratio
The formula for calculation of Quick Ratio =
(Cash and Marketable securities + Accounts receivables) / Current liabilities
As per the Information given in the question we have
Cash and Marketable securities = 151 ; Accounts receivables = 2350 ; Current liabilities = 5260
Applying the above values in the formula we have
= ( $ 151 + $ 2,350 ) / $ 5,260 = $ 2,501/ $ 5,260 = 0.475475
Thus Quick ratio = 0.4755 = 0.48
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