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Chapter 2: 4DQ (page 74)
What advantage does the fixed charge coverage ratio offer over simply using times interest earned?
The fixed charges coverage ratio is computed to measure the company鈥檚 ability to meet all the fixed financial liabilities rather than just interest expenses.
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Prepare an income statement for Franklin Kite Co. Take your calculations all the way to computing earnings per share.
Sales | $900,000 |
Shares outstanding | 50,000 |
Cost of goods sold | 400,000 |
Interest expenses | 40,000 |
Selling and administration expenses | 60,000 |
Depreciation expenses | 20,000 |
Preferred stock dividend | 80,000 |
Taxes | 50,000 |
What effect will disinflation following a highly inflationary period have on the reported income of the firm?
Using the financial statements for the Snider Corporation, calculate the 13 basic ratios found in the chapter.
SNIDER CORPORATION | |
Balance sheet | |
December 31, 20X1 | |
Assets | |
Current assets: | |
Cash | \(52,200 |
Marketable securities | 24,400 |
Accounts receivable (net) | 222,000 |
Inventory | 238,000 |
Total current assets | \)536,600 |
Investments | 65,900 |
Plant and equipment | \(615,000 |
Less: accumulated depreciation | (271,000) |
Net plant and equipment | \)344,000 |
Total assets | \(946,500 |
Liabilities and stockholder鈥檚 equity | |
Current liabilities: | |
Account payables | \)93,400 |
Notes payable | 70,600 |
Accrued taxes | 17,000 |
Total current liabilities | \(181,000 |
Long term liabilities: | |
Bonds payable | \)153,200 |
Total liabilities | \(334,200 |
Stockholder鈥檚 equity | |
Preferred stock, \)50 per value | \(100,000 |
Common stock, \)1 par value | 80,000 |
Capital paid in excess of par | 190,000 |
Retained earnings | 242,300 |
Total stockholder鈥檚 equity | \(612,300 |
Total liabilities and stockholder鈥檚 equity | \)946,500 |
SNIDER CORPORATION | |
Income statement | |
For the year ending December 31, 20X1 | |
Sales (on credit) | \(2,064,000 |
Less: cost of goods sold | 1,313,000 |
Gross profit | \)751,000 |
Less: selling and administrative expenses | 496,000* |
Operating profit (EBIT) | \(255,000 |
Less: interest expenses | 26,900 |
Earning before tax (EBT) | \)228,100 |
Less: taxes | 83,300 |
Earning after taxes (EAT) | \(144,800 |
*includes \)36,100 in lease payments
The balance sheet for Stud Clothiers is shown below. Sales for the year were \(2,400,000, with 90 percent of sales sold on credit.
Stud Clothier | |||
Balance sheet 20X1 | |||
Assets | Liabilities and Equity | ||
Cash | \)60,000 | Account payable | \(220,000 |
Account receivable | 240,000 | Accrued taxes | 30,000 |
Inventory | 350,000 | Bonds payable (long term) | 150,000 |
Plant and equipment | 410,000 | Common stock | 80,000 |
Paid in capital | 200,000 | ||
Retained earnings | 380,000 | ||
Total assets | \)1,060,000 | Total LIbilities and Equity | $1,060,000 |
Compute the following:
a. Current ratio
Gates Appliances has a return-on-assets (investment) ratio of 8 percent.
a. If the debt-to-total-assets ratio is 40 percent, what is the return on equity?
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