Financial Ratio Problem Set

Financial Ratio Problem Set Income Statement (in millions) Revenue Costs of Goods Sold Other Costs EBIT Taxes Interest Expense Earnings 100 70 10 20 4 5 11 # of shares = 2 million Price per share =32 Balance Sheet (annual average in millions) Current Assets Cash Marketable Securities Receivables Inventory Total Current Assets Total Long‐Term Assets Total Assets 2 1 3 9 15 175 190 Current Liabilities Long‐Term Debt Total Debt 5 95 100 Owner’s Equity 90 Note: To keep things simple, use total debt and total assets for leverage ratios (would it matter?). Find the following financial ratios: Current Ratio Quick Ratio Cash Ratio Asset Turnover Ratio Inventory Turnover Ratio Debt‐to‐Asset Ratio Equity Multiplier Times‐Interest‐Earned Ratio Net Profit Margin ROE Earnings Yield P/E Ratio Answers: Current Ratio = Current Assets/Current Liabilities = 15/5 =3 Quick Ratio = (Cash + Marketable Securities + Receivables)/Current Liabilities = 6/5 = 1.2 Cash Ratio = (Cash + Marketable Securities) / Current Liabilities = 3/5 =0.6 Asset Turnover Ratio = Revenue/Assets = 100/190 = 0.53 Inventory Turnover Ratio = (Cost of Goods Sold)/Inventory = 70/9 =7.78 Debt‐to‐Asset Ratio = Debt/Assets = 100/190 = 0.53 Equity Multiplier = Assets/Equity = 190/90 = 2.11 Times‐Interest‐Earned Ratio = EBIT /(Interest Expense) = 20/5 = 4 Net Profit Margin = Earnings / Revenue = 11/100 = 0.11 ROE = Earnings /Equity = 11/90 = 0.12 Earnings Yield = Earnings per Share / Price per Share = (11/2)/32 = 0.17 P/E Ratio = Price per Share/Earnings per Share = 32/(11/2) = 5.82