Financial Ratios Based on the balance sheets and income statement in the previous two problems, calculate the following ratios for 2018: Current ratio Quick ratio Cash ratio Inventory turnover Receivables turnover Days’ sales in inventory Days’ sales in receivables Total debt ratio Long-term debt ratio Times interest earned ratio Cash coverage ratio

We’ve calculated the following ratios based on the ending figures. If you don’t remember a definition, refer back to Table 3.8. TABLE 3.8 Common Financial Ratios I. Short-term solvency, or liquidity, ratios II. Long-term solvency, or financial leverage, ratios [latex]Current ratio=\frac{Current assets}{Current liabilities} [/latex] [latex]Total debt ratio=\frac{Total assets − Total equity}{Total assets} [/latex] [latex]Quick ratio=\frac{Current assets − Inventory}{Current liabilities} [/latex] [latex]Debt-equity ratio=Total debt/Total equity [/latex] [latex]Cash ratio=\frac{Cash}{Current liabilities} [/latex] [latex]Equity multiplier=Total assets/Total equity [/latex] [latex]Net working capital to total assets=\frac{Net working capital}{Total assets} [/latex] [latex]Long-term debt ratio=\frac{Long-term debt}{Long-term debt + Total equity} [/latex] [latex]Interval measure=\frac{Current assets}{Average daily operating costs} [/latex] [latex]Times interest earned ratio=\frac{EBIT}{Interest} [/latex] [latex]Cash coverage ratio=\frac{EBIT + Depreciation}{Interest} [/latex] III. Asset management, or turnover, ratios IV. Profitability ratios [latex]Inventory turnover=\frac{Cost of goods sold}{Inventory} [/latex] [latex]Profit margin=\frac{Net income}{Sales} [/latex] [latex]Daysʼ sales in inventory=\frac{365 days}{Inventory turnover} [/latex] [latex]Return on assets (ROA)=\frac{Net income}{Total assets} [/latex] [latex]Receivables turnover=\frac{Sales}{Accounts receivable} [/latex] [latex]Return on equity (ROE)=\frac{Net income}{Total equity} [/latex] [latex]Daysʼ sales in receivables=\frac{365 days}{Receivables turnover} [/latex] [latex]ROE=\frac{Net income}{Sales}\times \frac{Sales}{Assets}\times \frac{Assets^{*}}{Equity} [/latex] [latex]NWC turnover=\frac{Sales}{NWC} [/latex] V. Market value ratios [latex]Fixed asset turnover=\frac{Sales}{Net fixed assets } [/latex] [latex]Price-earnings ratio=\frac{Price per share}{Earnings per share} [/latex] [latex]Total asset turnover=\frac{Sales}{Total assets} [/latex] [latex]PEG ratio=\frac{Price-earnings ratio}{Earnings growth rate (\%)} [/latex] [latex]Price-sales ratio=\frac{Price per share}{Sales per share} [/latex] [latex]Market-to-book-ratio=\frac{Market value per share}{Book value per share} [/latex] [latex]Tobinʼs Q ratio=\frac{Market value of assets}{Replacement cost of assets} [/latex] [latex]Enterprise value-EBITDA ratio=\frac{Enterprise value}{EBITDA} [/latex] Current ratio $853/$1,725 = .49 times Quick ratio $525/$1,725 = .30 times Cash ratio $215/$1,725 = .12 times Inventory turnover $2,816/$328 = 8.59 times Receivables turnover $4,053/$310 = 13.07 times Days’ sales in inventory 365/8.59 = 42.51 days Days’ sales in receivables 365/13.07 = 27.92 days Total debt ratio $4,033/$7,380 = .546, or 54.6% Long-term debt ratio $2,308/$5,655 = .408, or 40.8% Times interest earned ratio $687/$502 = 1.37 times Cash coverage ratio $1,237/$502 = 2.46 times

Question 3.S-TP.3: Financial Ratios Based on the balance sheets and income stat...

Fundamentals of Corporate Finance

Financial Ratios Based on the balance sheets and income statement in the previous two problems, calculate the following ratios for 2018:

Current ratio
Quick ratio
Cash ratio
Inventory turnover
Receivables turnover
Days’ sales in inventory
Days’ sales in receivables
Total debt ratio
Long-term debt ratio
Times interest earned ratio
Cash coverage ratio

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We’ve calculated the following ratios based on the ending figures. If you don’t remember a definition, refer back to Table 3.8.

TABLE 3.8	Common Financial Ratios
I. Short-term solvency, or liquidity, ratios	II. Long-term solvency, or financial leverage, ratios
$Current ratio=\frac{Current assets}{Current liabilities}$	$Total debt ratio=\frac{Total assets − Total equity}{Total assets}$
$Quick ratio=\frac{Current assets − Inventory}{Current liabilities}$	$Debt-equity ratio=Total debt/Total equity$
$Cash ratio=\frac{Cash}{Current liabilities}$	$Equity multiplier=Total assets/Total equity$
$Net working capital to total assets=\frac{Net working capital}{Total assets}$	$Long-term debt ratio=\frac{Long-term debt}{Long-term debt + Total equity}$
$Interval measure=\frac{Current assets}{Average daily operating costs}$	$Times interest earned ratio=\frac{EBIT}{Interest}$
	$Cash coverage ratio=\frac{EBIT + Depreciation}{Interest}$
III. Asset management, or turnover, ratios	IV. Profitability ratios
$Inventory turnover=\frac{Cost of goods sold}{Inventory}$	$Profit margin=\frac{Net income}{Sales}$
$Daysʼ sales in inventory=\frac{365 days}{Inventory turnover}$	$Return on assets (ROA)=\frac{Net income}{Total assets}$
$Receivables turnover=\frac{Sales}{Accounts receivable}$	$Return on equity (ROE)=\frac{Net income}{Total equity}$
$Daysʼ sales in receivables=\frac{365 days}{Receivables turnover}$	$ROE=\frac{Net income}{Sales}\times \frac{Sales}{Assets}\times \frac{Assets^{*}}{Equity}$
$NWC turnover=\frac{Sales}{NWC}$	V. Market value ratios
$Fixed asset turnover=\frac{Sales}{Net fixed assets }$	$Price-earnings ratio=\frac{Price per share}{Earnings per share}$
$Total asset turnover=\frac{Sales}{Total assets}$	$PEG ratio=\frac{Price-earnings ratio}{Earnings growth rate (\%)}$
	$Price-sales ratio=\frac{Price per share}{Sales per share}$
	$Market-to-book-ratio=\frac{Market value per share}{Book value per share}$
	$Tobinʼs Q ratio=\frac{Market value of assets}{Replacement cost of assets}$
	$Enterprise value-EBITDA ratio=\frac{Enterprise value}{EBITDA}$

Current ratio	$853/$1,725	= .49 times
Quick ratio	$525/$1,725	= .30 times
Cash ratio	$215/$1,725	= .12 times
Inventory turnover	$2,816/$328	= 8.59 times
Receivables turnover	$4,053/$310	= 13.07 times
Days’ sales in inventory	365/8.59	= 42.51 days
Days’ sales in receivables	365/13.07	= 27.92 days
Total debt ratio	$4,033/$7,380	= .546, or 54.6%
Long-term debt ratio	$2,308/$5,655	= .408, or 40.8%
Times interest earned ratio	$687/$502	= 1.37 times
Cash coverage ratio	$1,237/$502	= 2.46 times