1. SDJ, Inc.
, has net working capital of $2,710, current liabilities of $3,950, and inventory of
$3,420.
What is the current ratio? (Round your answer to 2 decimal places. (e.g., 32.16))
Current ratio 1.69 1% times
What is the quick ratio? (Round your answer to 2 decimal places. (e.g., 32.16))
Quick ratio 0.82 0.01 times
Explanation:
The formula for NWC:
NWC = CA – CL
CA = CL + NWC = $2,710 + 3,950 = $6,660
So, the current ratio is:
Current ratio = CA / CL = $6,660/$3,950 = 1.69 times
And the quick ratio is:
Quick ratio = (CA − Inventory) / CL = ($6,660 − 3,420) / $3,950 = 0.82
times
2. Diamond Eyes, Inc., has sales of $18 million, total assets of $15.6 million, and total debt
of $6.3 million. Assume the profit margin is 8 percent.
What is net income? (Enter your answer in dollars not in millions, i.e. 1,234,567.)
The net income $ 1,440,000 0.01%
What is ROA? (Round your answer to 2 decimal places. (e.g., 32.16))
The ROA 9.23 1%
What is ROE? (Round your answer to 2 decimal places. (e.g., 32.16))
The ROE 15.28 1%
Explanation:
We need to find net income first. So:
Profit margin = Net income / Sales
Net income = Sales(Profit margin)
Net income = ($18,000,000)(0.08) = $1,440,000
ROA = Net income / TA = $1,440,000 / $15,600,000 = 0.0923, or 9.23%
To find ROE, we need to find total equity. Since TL & OE equals TA:
TA = TD + TE
TE = TA − TD
TE = $15,600,000 − 6,300,000 = $9,300,000
ROE = Net income / TE = $1,440,000 / $9,300,000 = 0.1548, or 15.48%
3. Boom Lay Corp. has a current accounts receivable balance of $327,815. Credit sales for
the year just ended were $4,238,720.
What is the receivables turnover? (Round your answer to 2 decimal places. (e.g., 32.16))
Receivables turnover 12.93 1% times
What is the days' sales in receivables? (Use 365 days a year. Do not round intermediate
calculations and round your final answer to 2 decimal places. (e.g., 32.16))
Sales in receivables 28.23 1% days
How long did it take on average for credit customers to pay off their accounts during the
past year? (Use 365 days a year. Round your answer to 2 decimal places. (e.g., 32.16))
Average collection period 28.23 1% days
Explanation:
Receivables turnover = Sales / Receivables
Receivables turnover = $4,238,720 / $327,815 = 12.93 times
Days' sales in receivables = 365 days / Receivables turnover = 365 / 12.93 =
28.23 days
The average collection period for an outstanding accounts receivable balance
was 28.23 days.
4. The Cape Corporation has ending inventory of $483,167, and cost of goods sold for the
year just ended was $4,285,131.
What is the inventory turnover? (Round your answer to 2 decimal places. (e.g., 32.16))
Inventory turnover 8.87 1% times
What is the days' sales in inventory? (Use 365 days a year. Round your answer to 2
decimal places. (e.g., 32.16))
Days' sales in inventory 41.16 1% days
How long on average did a unit of inventory sit on the shelf before it was sold? (Use 365
days a year. Round your answer to 2 decimal places. (e.g., 32.16))
Inventory days on shelf 41.16 1% days
Explanation:
Inventory turnover = COGS / Inventory
Inventory turnover = $4,285,131 / $483,167 = 8.87 times
Days' sales in inventory = 365 days / Inventory turnover = 365 / 8.87 = 41.16
days
On average, a unit of inventory sat on the shelf 41.16 days before it was sold.
5. Perry, Inc., has a total debt ratio of 0.46. What is its debt–equity ratio? (Round your
answer to 2 decimal places. (e.g., 32.16))
Debt–equity ratio 0.85 .01
What is its equity multiplier? (Round your answer to 2 decimal places. (e.g., 32.16))
Equity multiplier 1.85 1%
Explanation:
Total debt ratio = 0.46 = TD / TA
Substituting total debt plus total equity for total assets, we get:
0.46 = TD / (TD + TE)
Solving this equation yields:
0.46(TE) = 0.54(TD)
Debt/equity ratio = TD / TE = 0.46 / 0.54 = 0.85
Equity multiplier = 1 + D/E = 1.85
6. That Wich Corp. had additions to retained earnings for the year just ended of $375,000.
The firm paid out $175,000 in cash dividends, and it has ending total equity of $4.8
million. The company currently has 145,000 shares of common stock outstanding.
What are earnings per share? (Do not round intermediate calculations and round your
final answer to 2 decimal places. (e.g., 32.16))
Earnings $ 3.79 1% per share
What are dividends per share? (Round your answer to 2 decimal places. (e.g., 32.16))
Dividends $ 1.21 1% per share
What is the book value per share? (Round your answer to 2 decimal places. (e.g., 32.16))
Book value $ 33.10 1% per share
If the stock currently sells for $79 per share, what is the market-to-book ratio? (Do not
round intermediate calculations and round your final answer to 2 decimal places. (e.g.,
32.16))
Market-to-book ratio 2.39 1% times
What is the price–earnings ratio? (Do not round intermediate calculations and round
your final answer to 2 decimal places. (e.g., 32.16))
Price–earnings ratio 20.83 1% times
If the company had sales of $4.7 million, what is the price–sales ratio? (Do not round
intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
Price–sales ratio 2.44 1% times
Explanation:
Addition to RE + $375,000 + 175,000 =
Net income = =
Dividends $550,000
Earnings per $550,000 / 145,000 = $3.79
= NI / Shares =
share per share
Dividends per = Dividends / Shares = $175,000 / 145,000 = $1.21
share per share
Book value per $4,800,000 / 145,000 =
= TE / Shares =
share $33.10 per share
Market-to-book
= Share price / BVPS = $79 / $33.10 = 2.39 times
ratio
P/E ratio = Share price / EPS = $79 / $3.79 = 20.83 times
$4,700,000 / 145,000 =
Sales per share = Sales / Shares =
$32.41
Share price / Sales
P/S ratio = = $79 / $32.41 = 2.44 times
per share
7. You are given the following information for Shinoda Corp.:
Decrease in inventory $ 430
Decrease in accounts payable 165
Increase in notes payable 150
Increase in accounts receivable 180
Did cash go up or down? By how much?
Cash increased by $ 235 1%
Classify each event as a source or use of cash.
Decrease in inventory is a source of cash.
Decrease in accounts payable is a use of cash.
Increase in notes payable is a source of cash.
Increase in accounts receivable is a use of cash.
Explanation:
Decrease in inventory is a source of cash
Decrease in accounts payable is a use of cash
Increase in notes payable is a source of cash
Increase in accounts receivable is a use of cash
Change in cash = Sources − Uses = $430 − $165 + $150 − $180 = $235
Cash increased by $235
8. Isolation Company has a debt–equity ratio of .80. Return on assets is 7.9 percent, and
total equity is $480,000.
What is the equity multiplier? (Round your answer to 2 decimal places. (e.g., 32.16))
Equity multiplier 1.80 1%
What is the return on equity? (Round your answer to 2 decimal places. (e.g., 32.16))
Return on equity 14.22 1%
What is the net income?
Net income $ 68,256 0.1%
Explanation:
The equity multiplier is:
EM = 1 + D/E
EM = 1 + 0.80 = 1.80
One formula to calculate return on equity is:
ROE = (ROA)(EM)
ROE = 0.079(1.80) = 0.1422, or 14.22%
ROE can also be calculated as:
ROE = NI / TE
So, net income is:
NI = ROE(TE)
NI = (0.1422)($480,000) = $68,256
9. Prepare the 2012 combined common-size, common–base year balance sheet for Just
Dew It. (Do not round intermediate calculations and round your final answers to 4
decimal places. (e.g., 32.1616))
2011 2012
Assets
Current assets
Cash $ 9,279 $ 11,173 1.0964 1%
Accounts receivable 23,683 25,760 .9904 1%
Inventory 42,636 46,915 1.0019 1%
Total $ 75,598 $83,848 1.0099 1%
Fixed assets
Net plant and equipment $ 272,047 $297,967 .9973 1%
Total assets $ 347,645 $381,815 1.0000 1%
Liabilities and Owners’ Equity
Current liabilities
Accounts payable $ 41,060 $43,805 .9714 1%
Notes payable 16,157 16,843 .9492 1%
Total $ 57,217 $60,648 .9651 1%
Long-term debt $ 40,000 $35,000 .7967 1%
Owners' equity
Common stock and paid-in surplus 50,000 50,000 .9105 1%
Accumulated retained earnings 200,428 236,167 1.0729 1%
Total $ 250,428 $286,167 1.0404 1%
Total liabilities and owners' equity 347,645 381,815 1.0000 1%
Explanation:
The common-size, common-base year answers are found by dividing the
common-size percentage for 2012 by the common-size percentage for 2011.
For example, the cash calculation is found by:
$11,173 / $381,815 = 0.0293, or 2.93%
$9,279 / $347,645 = 0.0267, or 2.67%
2.93% / 2.67% = 1.0964
This tells us that cash, as a percentage of assets, increased by 9.64%.
10. Y3K, Inc., has sales of $6,189, total assets of $2,805, and a debt–equity ratio of 1.40. If its
return on equity is 13 percent, what is its net income? (Do not round intermediate
calculations and round your final answer to 2 decimal places. (e.g., 32.16))
Net income $ 151.94 1%
Explanation:
This is a multistep problem involving several ratios. The ratios given are all
part of the DuPont Identity. The only DuPont Identity ratio not given is the
profit margin. If we know the profit margin, we can find the net income since
sales are given. So, we begin with the DuPont Identity:
ROE = 0.13 = (PM)(TAT)(EM) = (PM)(S / TA)(1 + D/E)
Solving the DuPont Identity for profit margin, we get:
PM = [(ROE)(TA)] / [(1 + D/E)(S)]
PM = [(0.13)($2,805)] / [(1 + 1.4)( $6,189)] = 0.0245
Now that we have the profit margin, we can use this number and the given
sales figure to solve for net income:
PM = 0.0245 = NI / S
NI = 0.0245($6,189) = $151.94
