Liquidity ratios

Use this information to calculate the ratios below.

Cash $ 900Accounts receivable 1,200Inventory 2,100Accounts payable 1,600Average daily operating costs 70Total assets 8,600

Current ratio = __________ Cash ratio = __________Quick ratio = __________ Interval measure = __________Net working capital to total assets = __________

Liquidity ratios

Cash $ 900Accounts receivable

1,200Inventory

2,100 Current assets $4,200

Accounts payable 1,600Current liabilities $1,600

Answers continued on next slide.

625.2

600,1$

200,4$sliabilitieCurrent

assetsCurrent ratioCurrent

3125.1

600,1$

100,2$200,4$sliabilitieCurrent

Inventory - assetsCurrent ratioQuick

5625.0

600,1$

900$sliabilitieCurrent

Cash ratioCash

Liquidity ratios

Cash $ 900Accounts receivable $1,200Inventory $2,100Accounts payable $1,600Average daily operating costs $ 70Total assets $8,600

%23.30

)( 3023.

600,8$

600,1$200,4$assets Total

sliabilitiecurrent - assetsCurrent assets Total

capital gNet workin assets total tocapital gNet workin

rounded

days 6070

200,4$

costs operatingdaily Average

assetsCurrent measure Interval

Liquidity ratios

Assume you start with this situation:Cash $100Accounts receivable 100Inventory 100Total current assets $300 Accounts payable $150Total current liabilities $150

Now assume you pay $50 on your accounts payable. You now have this situation.

Cash $ 50Accounts receivable 100Inventory 100Total current assets $250 Accounts payable $100Total current liabilities $100

0.2$150$300 ratioCurrent

5.2$100$250 ratioCurrent

sliabilitieCurrent

assetsCurrent ratioCurrent

Liquidity ratios

Indicate for each action whether the current ratio, the quick ratio and the cash ratio will increase (I), decrease (D) or not change (NC). Assume net working capital is positive.

Current Quick Cash1. Short-term debt is paid ______ ______ _____2. Long-term debt is paid ______ ______ _____3. Inventory is sold on credit at a profit ______ ______ _____4. Inventory is sold for cash at cost ______ ______ _____5. A customer pays their bill ______ ______ _____6. Inventory is purchased on accounts payable ______ ______ _____7. Inventory is purchased for cash8. Cash is received from long-term loan ______ ______ _____

Liquidity ratios

Current Quick Cash1. Short-term debt is paid I I I2. Long-term debt is paid D D D3. Inventory is sold on credit at a profit I I NC4. Inventory is sold for cash at cost NC I I5. A customer pays their bill NC NC I6. Inventory is purchased on accounts payable D D D7. Inventory is purchased for cash NC D D8. Cash is received from long-term loan I I I

Long-term solvency ratios

Your firm has total assets of $146,000 and a total debt ratio of 40%.

What is the firm’s debt-equity ratio?

Long-term solvency ratios

Your firm has total assets of $146,000 and a total debt ratio of 40%. What is the firm’s debt-equity ratio?

Step 1: Find total debt

Step 2: Find total equity

Step 3: Find debt-equity ratio

$58,400 debt Total

000,146$

debt Total40.

assets Total

debt Total

assets Total

equity Total - assets Total ratiodebt Total

$87,600

$58,400 - $146,000

debt total- assets Total equity Total

(rounded) 67.

600,87$

400,58$

equity Total

debt Total ratioequity -Debt

Long-term solvency ratios

Your firm has earnings before interest and taxes of $27,931. The times interest earned ratio is 5.3 and the cash coverage ratio is 8.6.

What is the amount of the interest paid expense?

What is the amount of the depreciation expense?

Long-term solvency ratios

Your firm has earnings before interest and taxes of $27,931. The times interest earned ratio is 5.3 and the cash coverage ratio is 8.6.

Step 1: Find the interest expense using the times interest earned ratio

Step 2: Find the depreciation expense using the cash coverage ratio

Asset utilization ratios

Your firm has sales of $927,450, accounts receivables of $34,350, inventory of $48,600 and costs of goods sold of $648,810.

What is the inventory turnover rate?

How many days does it take to sell inventory?

What is the accounts receivable turnover rate?

How many days does it take to collect payment from a customer?

Round your answers to two decimal places.

Asset utilization ratios

Your firm has sales of $927,450, accounts receivables of $34,350, inventory of $48,600 and costs of goods sold of $648,810.

00.27

350,34$

450,927$receivable Accounts

Sales turnover sReceivable

Asset utilization ratios

Your firm has current liabilities of $21,800, total assets of $82,900 and sales of $149,200. The net working capital is $4,600.

1. What is the total asset turnover rate?

2. What is the NWC turnover rate?

3. What is the fixed asset turnover rate?

Round the turnover rates to two decimal places.

Asset utilization ratios

Your firm has current liabilities of $21,800, total assets of $82,900 and sales of $149,200. The net working capital is $4,600.

80.1

900,82$

200,149$assets Total

Sales over asset turn Total

$26,400 assetsCurrent

$21,800 - assetsCurrent $4,600

sliabilitiecurrent - assetsCurrent capital gNet workin

$56,500

$26,400 - $82,900

assetscurrent - assets Total assets fixedNet

64.2

500,56$200,149$

assets fixedNet Sales

over asset turn Fixed

Profitability ratios

Your firm has net income of $123,000 on sales of $2.4 million. Total assets are $2.46 million and total equity is $1.5 million.

What is the profit margin (return on sales)?

What is the return on assets?

What is the return on equity?

Profitability ratios

Your firm has net income of $123,000 on sales of $2.4 million. Total assets are $2.46 million and total equity is $1.5 million.

%125.5

05125.

000,400,2$

000,123$Sales

incomeNet margin Profit

%2.8

082.

000,500,1$

000,123$

equity Total

incomeNet equity on Return

Profitability ratios

Your firm has net income of $368,400, total assets of $23.946 million and an equity multiplier of 1.6.

What is the return on equity?

Profitability ratios

Your firm has net income of $368,400, total assets of $23.946 million and an equity multiplier of 1.6. What is the return on equity?

Step 1: Find total equity (TE)Step 2: Find return on equity (ROE)

0$14,966,25 equity Total

0$23,946,00 equity Total6.1

6.1equity Total

000,946,23$

multiplierEquity equity Totalassets Total

%46.2

.024615385 equity on Return

equityon Return 0$14,966,25

$368,400

equityon Return equity Total

incomeNet

Profitability ratios

Your firm has sales of $324,000 and total assets of $216,000. The debt-equity ratio is .5 and the profit margin is 5.4%.

What are the values of the three parts of the DuPont formula?What is the ROE?

Profitability ratios

Your firm has sales of $324,000 and total assets of $216,000. The debt-equity ratio is .5 and the profit margin is 5.4%. What are the values of the three parts of the DuPont formula? What is the ROE?

debt Total equity Total5.

equity Totaldebt Total

5.

equity Totaldebt Total

ratioequity -Debt

equity Total $144,000

equity Total 1.5 000,216$

equity Total equity Total .5 000,216$

equity Total debt Total assets Total

%15.12

1215.

5.15.1054.

000,144$

000,216$

000,216$

000,324$054.

equity Total

assets Total

assets Total

SalesPM

EM TAT PM ROE

Profitability ratios

Your firm has sales of $12,600, total assets of $8,100, and a debt-equity ratio of .80. The return on equity is 14%.

What is the net income?

Profitability ratios

Your firm has sales of $12,600, total assets of $8,100, and a debt-equity ratio of .80. The return on equity is 14%.

What is the net income?

incomeNet 630$

$4,500incomeNet

14.

equity TotalincomeNet

ROE

$4,500 equity Total

$8,100 equity Total 1.8

equity Total - $8,100 equity Total 8.

equity Totalequity Total100,8$

8.

equity Totalequity total- assets Total

ratioequity -Debt

Market value ratios

A firm has net income of $638,000 and total equity of $3.828 million. There are 200,000 shares of common stock outstanding. Each share is currently selling for $76.56.

What is the P/E ratio?

What is the market-to-book ratio?

Market value ratios

A firm has net income of $638,000 and total equity of $3.828 million. There are 200,000 shares of common stock outstanding. Each share is currently selling for $76.56.

19.3$

000,200

000,638$shares ofNumber

incomeNet EPS

2419.3$

56.76$

shareper Earnings

shareper Price P/E

414.19$

56.76$

000,200

000,828,3$56.76$

shares ofNumber

equity Totalshareper ueMarket val

shareper Book value

shareper ueMarket val book -to-Market