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Qs 1: Company currently has long-term debt of 1000 and equity of 1000.

How much equity should the company issue in order to reduce the long-term debt ratio to 25%?

Qs 2: Company currently has EBIT of 100 and interest payments of 50. To what extent can EBIT fall so that Times Interest Earned is 1.0?

Qs 3: Describe two ways in which company can increase its net working capital to total asset ratio?

Qs 4: If the companys cash balance increases by 500 but marketable securities decrease by 200 and account receivable remain the same with no change to current liabilities, what will happen to the quick ratio?

Qs 5: Suggest two ways in which Operating profit margin remains the same but net profit margin decreases?

Qs 6: Company already had 1000 in equity and issued 1000 worth of more equity during the year. Its profit increased from 250 to 500? What will happen to the firms ROE? (Average equity last year was 1000)

Qs 7: Company currently has long-term debt of 1000 and equity of 1000. How much long-term debt should the company issue in order to increase the long-term debt ratio to 75%?

Qs 8: Companys current assets are 1000 and current liabilities are 500, while total assets stand at 5000. What happens to the net working capital to total asset ratio if current assets increase by 100 but current liabilities stays the same?

Qs 9: Company already has cash balance of 500, account receivables worth 500 and current liability at 800. Later company decides to borrow 500 as short-term loans and invest in marketable securities what will happen to the quick ratio?

Qs 10: Suggest in what situation Operating profit margin remains the same but net profit margin increases?

Qs 11: Company makes a constant profit each year and gives no cash dividends, what will happen to ROE over time?

Qs 12: Compute ROE and ROA for the company via Dupont Analysis and suggest ways in which company can boost its ROE and ROA.

Balance Sheet Assets Fixed Assets Current Assets Cash

2010 4,000 500 600 5,100 2,500 2,600 5,100

2009 4,000 600 400 5,000 2,800 2,300 5,100


Income Statement Sales COGS Gross Profit Admin Expenses EBIT Interest Expense Tax Net Income 2010 2009 5,000 4,000 3,500 3,000 1,500 1,000 700 400 800 600 200 200 300 400 300 -

Liabilities Equity

Qs 12: Use the following information to compute Additional Financing Needed for the company.

Income Statement Sales COGS Gross Profit Other Expenses Net Income Dividend

2010 6,000 4,800 1,200 240 960 480

2009 5,000 4,000 1,000 200 800 400

Balance Sheet Assets Liabilities Equity

2010 10,200 4,920 5,280 10,200

2009 9,600 4,800 4,800 9,600

Qs 12: Use the following information to compute Working Capital requirement for the company. Projected Annual Sales = 1000,000 units Selling Price = PKR 3 per unit Carry inventory for 10 weeks Credit received from customer is 12 weeks Credit received from supplier is 8 weeks Profit Margin is 20% Contingency is 20% of Net Working Capital Calculate GWC, NWC and length of the Working Capital Cycle?

Formula Sheet: Long-term debt ratio = Long-term debt / (long-term debt + equity) Times Interest Earned = EBIT / Interest Payments Cash Coverage Ratio = (EBIT + depreciation) / interest payments Net working capital to total asset ratio = Net Working Capital / Total Assets Quick Ratio = (Cash + Marketable Securities + Receivables) / Current Liabilities Cash Ratio = (Cash + Marketable Securities) / (Current liabilities) NWC Turnover = Sales / (Average Net working capital) Average Collection Period = average receivables / average daily sales Inventory Turnover Ratio = Cost of goods sold / average inventory Days sales in inventory = (Average Inventory / Cost of Goods Sold) x 365 Net Profit Margin = Net Profit / Sales Operating Profit Margin = EBIT / Sales Gross Profit Margin = Gross Profit / Sales Return on Asset = Net Income / average total assets Return on Equity = Net Income / average equity Payout Ratio = Dividends / Net Income Plowback Ratio = 1 Payout Ratio P/E Ratio = Current Price per share / Earning per Share Forecasted P/E Ratio = Current Price per Share / Forecasted Earning per share Dividend Yield = Dividend per Share / Current Price per Share Dividend Discount Model - Price per Share = Next yrs dividend / (r-g) Market to Book Ratio = Stock Price / Book Value per Share Tobins Q = Market Value of Assets / estimated replacement cost Dupont Analysis:

ROA = (Sales / Assets) x (Net Income / Sales) ROE = (Assets / Equity) x (Sales / Assets) x (EBIT / Sales) x (Net Income / EBIT) Economic Profit = (ROI r) x Capital invested Economic Value Added (EVA) = Income earned (cost of capital x investment) Additional Financing Needed = (A/S) x g x S (L/S) x g x S Net Margin x (1 + g) x S D Gross Working Capital = Total Current Assets Net Working Capital = Current Assets Current Liabilities