Based on the balance sheets and income statement in the previous two problems, calculate the following ratios for 2002:

Question

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

Accepted Answer

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 = [latex]\frac{ ext{Current assets}}{ ext{Current liabilities}}[/latex]	Total debt ratio = [latex]\frac{ ext{Total assets - Total equity}}{ ext{Total assets}}[/latex]
Quick ratio = [latex]\frac{ ext{Current assets - Inventory}}{ ext{Current liabilities}}[/latex]	Debt-equity ratio = Total debt/Total equity Equity multiplier = Total assets/Total equity
Cash ratio = [latex]\frac{Cash}{ ext{Current liabilities}}[/latex]	Long-term debt ratio =[latex]\frac{ ext{Long-term debt}}{ ext{Long-term debt + Total equity}}[/latex]
Net working capital to total assets = [latex]\frac{ ext{Net working capital}}{ ext{Total assets}}[/latex]	Times interest earned ratio = [latex]\frac{EBIT}{Interest}[/latex]
Interval measure = [latex]\frac{ ext{Current assets}}{ ext{Average daily operating costs}}[/latex]	Cash coverage ratio = [latex]\frac{EBIT + Depreciation}{Interest}[/latex]
III. Asset utilization, or turnover, ratios	IV. Profitability ratios
Inventory turnover = [latex]\frac{ ext{Cost of goods sold}}{ ext{Inventory}}[/latex]	Profit margin = [latex]\frac{ ext{Net income}}{ ext{Sales}}[/latex]
Days’ sales in inventory =[latex]\frac{ ext{365 days}}{ ext{Inventory turnover}}[/latex]	Return on assets (ROA) = [latex]\frac{ ext{Net income}}{ ext{Total assets}}[/latex]
Receivables turnover = [latex]\frac{ ext{Sales}}{ ext{Accounts receivable}}[/latex]	Return on equity (ROE) = [latex]\frac{ ext{Net income}}{ ext{Total equity}}[/latex]
Days’ sales in receivables = [latex]\frac{ ext{365 days}}{ ext{Receivables turnover}}[/latex]	ROE = [latex]\frac{ ext{Net income}}{ ext{Sales}} × \frac{ ext{Sales}}{ ext{Assets}} × \frac{ ext{Assets}}{ ext{Equity}}[/latex]
NWC turnover = [latex]\frac{Sales}{NWC}[/latex]	V. Market value ratios
Fixed asset turnover = [latex]\frac{ ext{Sales}}{ ext{Net fixed assets}}[/latex]	Price-earnings ratio =[latex]\frac{ ext{Price per share}}{ ext{Earnings per share}}[/latex]
Total asset tur nover = [latex]\frac{ ext{Sales}}{ ext{Total assets}}[/latex]	Market-to-book ratio = [latex]\frac{ ext{Market value per share}}{ ext{Book value per share}}[/latex]

Question 3CRS-TP3: Based on the balance sheets and income statement in the prev...

Related Answered Questions

Consider the following balance sheets for the Philippe Corporation. Calculate the changes in the various accounts and, where applicable, identify the change as a source or use of cash. What were the major sources and uses of cash? Did the company become more or less liquid during the year? What ...

Verified Answer:

Below is the most recent income statement for Philippe. Prepare a common-size income statement based on this information. How do you interpret the standardized net income? What percentage of sales goes to cost of goods sold? ...

Verified Answer:

Calculate the 2002 ROE for the Philippe Corporation and then break down your answer into its component parts using the Du Pont identity. ...

Verified Answer:

Take a look at the most recent numbers reported for Sales/Receivables and EBIT/Interest in Table 3.11. What are the overall median values? What are these ratios? ...

Verified Answer:

Because ROE and ROA are usually intended to measure performance over a prior period, it makes a certain amount of sense to base them on average equity and average assets, respectively. For Prufrock, how would you calculate these? ...

Verified Answer:

Suppose you find that a particular company generates $.40 in sales for every dollar in total assets. How often does this company turn over its total assets? ...

Verified Answer:

Here is a variation on the receivables collection period. How long, on average, does it take for Prufrock Corporation to pay its bills? To answer, we need to calculate the accounts payable turnover rate using cost of goods sold. We will assume that Prufrock purchases everything on credit. ...

Verified Answer:

Suppose a firm pays off some of its suppliers and short-term creditors. What happens to the current ratio? Suppose a firm buys some inventory. What happens in this case? What happens if a firm sells some merchandise? ...

Verified Answer: