Assets Cash $ 1,500 Marketable Securities 2,500 Accounts Receivable 15,000 Inven
ID: 2815708 • Letter: A
Question
Assets
Cash $ 1,500
Marketable Securities 2,500
Accounts Receivable 15,000
Inventory 33,000
Tot. Curr. Assets $52,000
Fixed Assets (net) 35,000
Total Assets $87,000
Liabilities and Stockholder’s Equity
Accounts Payable $12,500
Notes Payable 12,500
Tot. Current Liab. $25,000
Long-term Debt 22,000
Total Liabilities $47,000
Common Stock (par) 5,000
Paid-in Capital 18,000
Retained Earnings 17,000
Total Stock Equity $40,000
Tot Liab. And Stockholder
Equity $87,000
3. For ratio calculations (30 points) 2 points each except were noted Higginbotham, INC Balance Sheet ($000) Higginbotham, INC Income Statement ($000) Sales (all on credit) $130,000 Cost of Good Sold 103,000 Gross Margin 27,000 Operating Expenses 16,000 Earnings before Interest and Taxes 11,000 Interest Expense 3,000 Earnings before Taxes 8,000 Taxes 3,000 Earnings After Taxes $ 5,000 Other Information: Stock Price $9.50 Book Value per Share $8.00 Number of Shares 5,000,000 Use the Balance Sheet and Income Statement of Higginbotham, INC to answer the following: 1. Calculate the following liquidity ratios. Current Ratio - 1.00:1 Quick Ratio 1.15:1 Calculate the following Activity Ratios. Average Collection Period - 42 Days Inventory Turnover 3.12 Fixed Asset Turnover 3.71 Total Asset Turnover - 1.49 Calculate the following financial leverage ratios. Debt ratio Debt-to-equity ratio Times Interest earned ratio Calculate the following profitability ratios. Gross Profit Margin .79:1 Net Profit Margin Return on investment Return on Stockholder’s equity Calculate the following market-based ratios Price-to-earnings ratio Market price to book ratio 6. Express the return on stockholder’s equity ratio as a function of the net profit margin, total asset turnover, and equity multiplier. (3 points bouns)
Explanation / Answer
1. Calculate the following liquidity ratios.
Current Ratio = Total Current Assets/Total Current liabilities =$52000/$47000 =1.1064.
Quick Ratio =(Total Current Assets- Inventory)/Total Current liabilities
= ($52000- $33000 )/$47000= 0.404
Calculate the following Activity Ratios.
Average Collection Period -Average Trade detors / Net Credit salesX 100 =42 Days
Inventory Turnover =Net Sales / Inventory =3.12
Fixed Asset Turnover = Cost of goods Sold / Total Fixed Assets= 3.71
Total Asset Turnover -=Cost of goods Sold / Total Assets =1.49
Calculate the following financial leverage ratios.
Debt ratio = Total Liabilities /Total Asset = $47000/$52000 =0.94
Debt-to-equity ratio=Total Long Term Debts / Shareholders Fund = $ 22,000/ $40,000
Times Interest earned ratio = EBIT/ Interest Expanses = 11,000 /3000 =
Calculate the following profitability ratios
Gross Profit Margin =Gross Profit/Net Sales X 100 = 11,000 /130,000 *100 =8.46
Net Profit Margin = Net Operating Profit/Net Sales X 100= 5000/ 130,000 *1000 =3.87
Return on investment = Net Profit After Interest And Taxes/ Shareholders Funds or Investments X 100 = 5000 /40,000 *100 =12.5
Return on Stockholder’s equity =Net Profit After Interest And Taxes/ Equity Funds X 100
= 5000 /5000 *100 =100
Calculate the following market-based ratios
Price-to-earnings ratio = Market Price Per Share Equity Share/ Earning Per Share X 100 = $9.50/0.001 = 9500.
( check data in question please)
Earning Per Share = profit after tax/ Number of shares =$ 5000/5,000,000 = 0.001
Market price to book ratio = Market price / Book value = $9.5/$8.0 = 1.1875 = 1.19.
Express the return on stockholder’s equity ratio as a function of the net profit margin, total asset turnover, and equity multiplier
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