Q 1 . The following data
apply to A.L. A.L. Ka iser & Company (millions (millions of of
dollars): Cash and market able securities securities $10 0.00 Fixed Fixed assets 283 .50 Sales $1,000.00 Net income income $50.00 Quick Qui ck ratio 2.0x Current Current ratio 3.0x DSO DS O a 40.55 days ROE 12% a Calc ulation is based on a 36 5-day 5-day yea r. Ka iser has no preferred stock—only stock—only comm on equity, current liabilities, and longlong-te rm debt . a. Find Kaiser’s (1) (1) a cc oun ounts ts rec eivable (A/R), (A/R), (2) current liabilities, (3) current assets, (4) total assets, (5) ROA, (6) common equity, and (7) longlon g-te te rm de bt. b. In part a, you should have found Kaiser’s accounts receivable (A/R) = $111.1 million. If Kaiser could reduce its DSO from 40.55 days to 30.4 days while holding other things constant, how much cash would it generate? If this cash were used to buy back common stock (at book value), thus reducing the amount of common equity, how would this affect (1) the ROE, (2) the ROA, and (3) the total debt/total assets ratio?
Q2 .
The Petry Company has $1,312,500 in current assets and
$525,000 in current liabilities. Its initial inventory level is $375,000, and it will raise funds as additional notes payable and use them to increase inventory. How much can Petry’s short-term debt (notes payable) increase without pushing its current ratio below 2.0? What
will be the firm’s quick ratio after Petry has raised the maximum amount of short-term funds?
Q3 .
The K retovich Company had a quick rat io of 1.4, a c urrent ratio of
3.0, an inventory turnover of 6 times, total current assets of $810,000, and cash and marketable securities of $120,000 in 2001. What were Kretovich’s annual sales and its DSO for that year? Assume there are 365 days in a year.
Q4 .
The H.R. Pickett Corporation has $500,000 of debt outstanding,
and it pays an interest rate of 10 percent annually. Pickett’s annual sales are $2 million, its average tax rate is 30 percent, and its net profit ma rgin on sales is 5 percent . If the c ompany does not ma intain a TIE ratio of at least 5 t imes, its bank w ill refuse to renew the loan, and bankruptcy w ill result. What is Picke tt ’s TIE ratio?
Q5 .
Complete the balance sheet and sales information in the table
that follows for Hoffmeister Industries using the following financial data: Debt rat io: 50 % Quick ratio: 0.80 x Tota l assets turnover: 1.5x Days sales outsta nding: 36 .5 days a Gross profit m argin on sale s: (Sales - Cost of goods sold)/Sale s = 25 % Inventory turnover ratio: 5x a Calculation is based on a 3 65-day year. BALANCE SHEET Ca sh ________________ A/R ____________ I nve nt orie s __________________ Fix e d a sse t s __________________ Tot al ass et s $3 00 ,0 00
Ac c ou nt s pa yabl e Long-t e rm de bt Com m on st oc k Re t a ine d e arni ngs Tot al lia b. & equit y
_________ 6 0 ,0 0 0 __________ 9 7 ,5 0 0 __________
Sa le s
Co st of go od s sol d
__________
__________________
Q6 .
Data for Barry Computer Company a nd its industry avera ges
follow. a. Calculate the indicat ed ratios for Barry. b. Construct t he e xt ended Du Pont e quation for both Barry and the industry. c. Outline Barry’s strengths and w ea knesses as re vealed by your analysis. d. Suppose Ba rry had doubled its sales a s w ell as it s inventories, ac counts receivable, and common equity during 200 1. How w ould that informat ion affect the validity of your ratio analysis? (Hint: Think about averages and the e ffects of rapid growth on ratios if averages are not used. No ca lculations are needed.)
Barry Computer Company: Balance Shee t as of Dec 3 1, 20 01 (I n 000’s) Cash $ 77,50 0 Accounts payable $ 129,00 0 Receivables 336 ,000 Notes payable 84,00 0 Inventories 241 ,500 Other current liab. 117,00 0 Tot. C Assets $ 655 ,000 Tot C liabilities $ 330 ,000 Net fixed assets 292 ,500 Long-term debt 256 ,500 Common equity 361 ,000 Total assets $ 947 ,500 Total liabilities and equity $ 947 ,500 Barry Computer Company: P& L for Yea r End Dec31 , 200 1 (In 0 00 ’s) Sales $1,607,500 Cost of goods sold: Materials $717,000 Labor 453,000 Hea t, light, and pow er 68,00 0 Indirect labor 113 ,000 Depreciation 41,500 COGS 1,392,500 Gross profit $ 215 ,000 Selling ex penses 11 5,00 0 General and administrative expenses 30,000 Earnings before interest and ta xe s (EBIT) $ 70 ,000 Interest expense 24,500
Earnings before ta xe s (EBT) Federal and state income tax es (40%) Net income
$ 45 ,500 18,200 $ 27,300
RATIO
BARRY
Current asset s/current liabilities Days sales outstanding a Sales/inventories Sales/total assets Net income/sales Net income/total assets Net income/common equity Total debt/total assets
__________________
a
Calculation is based on a 36 5-day year.
__________________ __________________ __________________ __________________ __________________ __________________ __________________
INDU STRY AVG
2.0x 35 days 6.7x 3.0x 1.2% 3.6% 9.0% 60.0%
