Question 3CRS-TP3: Based on the balance sheets and income statement in the prev...
Based on the balance sheets and income statement in the previous two problems, calculate the following ratios for 2002:
Current ratio ـــــــــــــــــــــــــــــــــــــــــ
Quick ratio ـــــــــــــــــــــــــــــــــــــــــ
Cash ratio ـــــــــــــــــــــــــــــــــــــــــ
Inventory turnover ـــــــــــــــــــــــــــــــــــــــــ
Receivables turnover ـــــــــــــــــــــــــــــــــــــــــ
Days’ sales in inventory ـــــــــــــــــــــــــــــــــــــــــ
Days’ sales in receivables ـــــــــــــــــــــــــــــــــــــــــ
Total debt ratio ـــــــــــــــــــــــــــــــــــــــــ
Long-term debt ratio ـــــــــــــــــــــــــــــــــــــــــ
Times interest earned ratio ـــــــــــــــــــــــــــــــــــــــــ
Cash coverage ratio ـــــــــــــــــــــــــــــــــــــــــ
We’ve calculated the following ratios based on the ending figures. If you don’t remember a definition, refer back to Table 3.8.
| Current ratio $853/$1,725 = .49 times
Quick ratio $525/$1,725 = .30 times Cash ratio $215/$1,725 = .12 times Inventory turnover $2,780/$328 = 8.48 times Receivables turnover $4,053/$310 = 13.07 times Days’ sales in inventory 365/8.48 = 43.06 days Days’ sales in receivables 365/13.07 = 27.92 days Total debt ratio $4,033/$7,380 = 54.6% Long-term debt ratio $2,308/$5,655 = 40.8% Times interest earned ratio $723/$502 = 1.44 times Cash coverage ratio $1,273/$502 = 2.54 times |
| TABLE 3.8 Common Financial Ratios | |
| I. Short-term solvency, or liquidity, ratios | II. Long-term solvency, or financial leverage, ratios |
| Current ratio = \frac{\text{Current assets}}{\text{Current liabilities}} | Total debt ratio = \frac{\text{Total assets – Total equity}}{\text{Total assets}} |
| Quick ratio = \frac{\text{Current assets – Inventory}}{\text{Current liabilities}} | Debt-equity ratio = Total debt/Total equity
Equity multiplier = Total assets/Total equity |
| Cash ratio = \frac{Cash}{\text{Current liabilities}} | Long-term debt ratio =\frac{\text{Long-term debt}}{\text{Long-term debt + Total equity}} |
| Net working capital to total assets = \frac{\text{Net working capital}}{\text{Total assets}} | Times interest earned ratio = \frac{EBIT}{Interest} |
| Interval measure = \frac{\text{Current assets}}{\text{Average daily operating costs}} | Cash coverage ratio = \frac{EBIT + Depreciation}{Interest} |
| III. Asset utilization, or turnover, ratios | IV. Profitability ratios |
| Inventory turnover = \frac{\text{Cost of goods sold}}{\text{Inventory}} | Profit margin = \frac{\text{Net income}}{\text{Sales}} |
| Days’ sales in inventory =\frac{\text{365 days}}{\text{Inventory turnover}} | Return on assets (ROA) = \frac{\text{Net income}}{\text{Total assets}} |
| Receivables turnover = \frac{\text{Sales}}{\text{Accounts receivable}} | Return on equity (ROE) = \frac{\text{Net income}}{\text{Total equity}} |
| Days’ sales in receivables = \frac{\text{365 days}}{\text{Receivables turnover}} | ROE = \frac{\text{Net income}}{\text{Sales}} × \frac{\text{Sales}}{\text{Assets}} × \frac{\text{Assets}}{\text{Equity}} |
| NWC turnover = \frac{Sales}{NWC} | V. Market value ratios |
| Fixed asset turnover = \frac{\text{Sales}}{\text{Net fixed assets}} | Price-earnings ratio =\frac{\text{Price per share}}{\text{Earnings per share}} |
| Total asset tur nover = \frac{\text{Sales}}{\text{Total assets}} | Market-to-book ratio = \frac{\text{Market value per share}}{\text{Book value per share}} |