Q No.4 Use the following selected financial data for Happy Valley Co.

to answer
questions.
Net sales Rs. 200,000
Cost of goods sold 90,000
Operating expenses 80,000
Net income 10,000
Total assets 180,000
Total liabilities 120,000

Calculate: (1) Debt ratio (2) Operating profit margin (3) Return on equity (4) Net
profit margin (5) Gross Profit ratio (6) Operating expense ratio (7) Assets
turnover
SOLUTION:

1
) Debt Ratio= Total Debt/ Total Assets
120,000/ 180,000
0.67

2
) Operating profit margin= Operating Profit/ Net Sales
30,000/ 200,000
15.00%

3
) Return on equity= Net income/ Total equity
10,000/ 60,000
16.67%

4
) Net profit margin= Net income/ Net Sales
10,000/ 200,000
5.00%

5
) Gross Profit Margin= Gross Profit/ Net Sales
110,000/ 200,000
55.00%

6
) Operating expense ratio= Operating expense/ Gross profit
80,000/ 110,000
0.73
7
) Asset Turnover= Net sales/ Total assets
200,000/ 180,000
1.11
Q No.5 Use the following selected financial information for Cascabel Corporation to
answer questions;
Cascabel Corporation
Balance Sheet
31-Dec-15

Assets Liabilities and stockholders' equity

Current assets Current liabilities
Cash 2 Accounts payable 36
Short-term investments 10 Accrued liabilities 25
Accounts receivable 52 Total current liabilities 61
Inventory 57 Long-term debt 102
Other current assets 8 Total liabilities 163
Total current assets 129 Stockholders' equity
Common stock (10) 110
Long-term assets Retained earnings 51
Net Plant 195 Total stockholders' equity 161
Total assets 324 Total liabilities and equity 324

Cascabel Corporation
Income Statement
For the Year Ended December 31, 2015

Net sales 345

Cost of goods sold (248)

Gross profit 97
Operating expenses (74)

Operating profit 23
Interest expense (8)

Earnings before taxes 15

Income tax expense (4)

Net profit 11

Additional information: Market price of stock is Rs.25. Firm declared and paid dividend 20% on
par value of stock.
Compute following ratios:
Current ratio (2) Quick ratio (3) Debt ratio (4) Equity ratio (5) Inventory turnover in days
(use 360 days) (6) Receivable turnover in days (use 360 days) (7) Earnings per share (8)
Book value per share (9) Interest coverage ratio (10) Gross Profit ratio
SOLUTION:

1) Current Ratio:
Current Assets/ Current Liabilities =
129 / 61 = 2.11

2) Quick Ratio:
Current Assets-Inventories / Current Liabilities
=
(129-57) / 61 = 1.18

3) Debt Ratio:
Total Debt / Total Assets =
163 / 324 = 0.503

4) Equity Ratio:
Total Equity / Total Assets =
161 / 324 = 0.497

5) Inventory Turnover in days:

Average Inventory x 360 / Cost of Goods Sold =
57 x 360 / 248 = 82.742

6) Receivable Turnover in days:

Average A/R x 360 / Sales =
52 x 360 / 345 = 54.261

7) Earnings Per Share:

Net Income / Outstanding Shares =
11 / 11 = 1.00

8) Book Value per Share:

Common Equity / Outstanding Shares =
161 / 11 = 14.64

9) Interest Coverage Ratio:

EBIT / Interest Expense =
23 / 8 = 2.88

10
) Gross Profit Margin:
Gross Profit / Sales =
248 / 345 = 72%
Q No.6

Belmont Industries

Balance Sheet

As at 31-Dec-01

Assets Liabilities & Equity

Cash $ 100,000 Current Liabilities

Receivables   Long Term Debt  

Inventory   Total Debt

Plant   Common Equity $ 600,000

Total Assets   Total Claims  

Current Ratio 2.5

Average Collection Period 54 days

Total Debt to Total Assets 40%

Total Asset Turnover 2

Inventory Turnover 5

SOLUTION:

Belmont Industries
Balance Sheet
As at 31-Dec-01
Assets Liabilities & Equity
Cash $100,000 Current Liabilities $320,000
Receivables $300,000 Long Term Debt $80,000
Inventory $400,000 Total Debt $400,000
Plant $200,000 Common Equity $600,000
Total Assets $1,000,000 Total Claims $1,000,000
Ratios to calculate the values of Belmont Industries Balance Sheet:
1) Hence:
Total Debt to Total Assets= 40%
Therefore:
Common Equity= 60%
Total Assets= 600,000/ 60%
$1,000,000
2)
Total Assets Turnover= 2
Total Assets Turnover= Sales / Total Assets
Sales= Total Assets Turnover x Total Assets
2 x 1,000,000
$2,000,000
3)
Average Collection Period= 54 days
Average Collection Period= Average Accounts Receivable x 360 / Sales
Average A/R= Average Collection Period x Sales / 360
54 x 2,000,000 / 360
$300,000

4) Inventory Turnover= 5 days

Inventory Turnover= Sales / Average Inventory
Average Inventory= Sales / Inventory Turnover
2,000,000 / 5
$400,000

5) Current Ratio= 2.5

Current Ratio= Current Assets / Current Liabilities
Current Liabilities= Current Assets / Current Ratio
800,000 / 2.5
$320,000
Q No. 7
Illinois Paper Products
Balance Sheet
As at 31-Dec-01
Assets Liabilities & Equity
Cash   Current Liabilities
Receivables   Long Term Debt  
Inventory   Total Debt $ 700,000
Plant   Common Equity
Total Assets   Total Claims  
 
Total debt to Net Worth 1.4
Total Asset Turnover 3
Inventory Turnover 9
Average Collection Period 20 days
Current Ratio 3.3
Quick Ratio 1.3

SOLUTION:
Illinois Paper Products
Balance Sheet
As at 31-Dec-01
Assets Liabilities & Equity
Current
Cash $60,000
Liabilities $200,000
Receivables $200,000 Long Term Debt $500,000
Inventory $400,000 Total Debt $700,000
Plant $540,000 Common Equity $500,000
Total Assets $1,200,000 Total Claims $1,200,000

Ratios to calculate the values of Illinois Paper Products Balance Sheet:

1) Total Debt to Net Worth: 1.4
Net worth= Total Assets - Total Debt
Total Debt to Net Worth= Total Debt / Net worth
(Total Debt / Total Debt to Net Worth)+Total
Total Assets= Debt
(700,000 / 1.4) + 700,000
$1,200,000

2) Total Asset Turnover: 3

Total Asset Turnover= Sales / Total Assets
Sales= Total Assets Turnover x Total Assets
 3 x 1,200,000
$3,600,000
Inventory
3) Turnover: 9
Inventory Turnover= Sales / Inventory
Inventory= Sales / Inventory Turnover
3,600,000 / 9
$400,000

4) Average Collection Period: 20 days

Average Collection Period= A/R x 360 / Sales
Accounts Receivable= Avg. Collection Period x Sales / 360
20 x 3,600,000 / 360
$200,000

5) Simultaneous Equation of Quick Ratio & Current Ratio

Current Ratio= Current Assets / Current Liabilities
Current Liabilities = Current Assets / Current Ratio

Quick Ratio= Current Assets - Inventory / Current Liabilities

Current Liabilities= Current Assets - Inventory / Quick Ratio

Current Liabilities = Current Liabilities

Current Assets / Current Ratio = Current Assets - Inventory / Quick Ratio
Current Assets / 3.3 = Current Assets - 400,000 / 1.3
Current Assets = X
1.3X = 3.3X - (3.3) (400,000)
3.3X - 1.3X = $1,320,000
X (3.3-1.3)= $1,320,000
2X = 1,320,000
X= 1,320,000 / 2
Current Assets = $660,000

6) Current Ratio: 3.3

Current Ratio= Current Assets / Current Liabilities
Current Liabilities= Current Assets / Current Ratio
660,000 / 3.3
$200,000
Q No.8 The Shannon Corporation has Sales of $750,000. Given the following ratios, fill in
the balance sheet below:
Total asset turnover 2.5 times
Cash to total assets 2.0 percent
Accounts Receivable Turnover 10.0 times
Inventory turnover 15.0 times
Current Ratio 2.0 times
Debt to total assets 45.0 percent

SHANNON CORPORATION
BALANCE SHEET , 1999
Assets Liabilities & Shareholder's Equity
               
Cash Total Current Liabilities
Accounts Receivable Long term Debt
Inventory Total Debt
Total Current assets
Fixed Assets Net Worth
Total Assets   Total Liabilities & Equity

SOLUTION:

SHANNON CORPORATION
BALANCE SHEET , 1999
Assets Liabilities & Shareholder's Equity
               
Cash 6,000 Total Current Liabilities 65,500
Accounts Receivable 75,000 Long term Debt 69,500
Inventory 50,000 Total Debt 135,000
Total Current assets 131,000  
Fixed Assets 169,000 Net Worth 165,000
Total Assets   300,000 Total Liabilities & Equity 300,000
Ratios to calculate the values of Shannon Corporation Balance Sheet:

1) Total Asset Turnover: 2.5 times

Total Asset Turnover= Sales / Total Assets
Total Assets= Sales / Total Assets Turnover
750,000 / 2.5
300,000

2) Cash to Total Assets: 2%

Cash to Total Assets= Cash / Total Assets
Cash= Cash to total Assets x Total Assets
2% x 300,000
6000

3) A/R Turnover: 10.0 times

A/R Turnover= Sales / Avg. Accounts Receivable
Avg. Accounts Receivable= Sales / Account Receivable Turnover
750,000 / 10
75,000

4) Inventory Turnover: 15.0 times

Inventory Turnover= Sales / Avg. Inventory
Average Inventory= Sales / Inventory Turnover
750,000 / 15
50,000

5) Current Ratio: 2.0 times

Current Ratio= Current Assets / Current Liabilities
Current Liabilities= Current Assets / Current Ratio
131,000 / 2
65,500

6) Debt to total Assets: 45%

Debt to total Assets= Total Debt / Total Assets
Total Debt= Debt to Total Assets x Total Assets
300,000 x 45%
135,000
Q No. 9 The following data are from the U Guessed it Company’s financial statements. This
company is a manufacturer of board games for young adults. The market is fiercely competitive,
therefore all sales ($20 million) for the year 1983 were on credit. Given the following ratios, fill
in the balance sheet below:

Sales to total assets 2 times

Total debt to assets 40%
Current Ratio 3.0 times
Inventory turnover 5.0 times
Average collection period 18 days
Fixed asset turnover 5.0 times

U GUESSED IT CO.
BALANCE SHEET , 1983
Assets Liabilities & Shareholder's Equity
               
Cash Total Current Liabilities
Accounts Receivable Long term Debt
Inventory Total Debt
Total Current assets
  Net Worth
Fixed Assets
Total Assets   Total Liabilities & Equity

SOLUTION:

U GUESSED IT CO.
BALANCE SHEET , 1983
Assets Liabilities & Shareholder's Equity
               
Cash 1,000,000 Total Current Liabilities 2,000,000
Accounts Receivable 1,000,000 Long term Debt 2,000,000
Inventory 4,000,000 Total Debt 4,000,000
Total Current assets 6,000,000  
    Net Worth 6,000,000
Fixed Assets 4,000,000  
Total Assets   10,000,000 Total Liabilities & Equity 10,000,000
Ratios to calculate the values of U Guessed It Co. Balance Sheet:

1) Sales to total assets: 2 times

Sales to total assets= Sales / Total Assets
Total Assets= Sales / Sales to Total Assets
20,000,000 / 2
10,000,000

2) Total debt to assets: 40%

Total debt to assets= Total Debt / Total Assets
Total Debt= Total Assets x Total Debt to assets
10,000,000 x 40%
4,000,000

3) Inventory Turnover: 5 times

Inventory Turnover= Sales / Inventory
Inventory= Sales / Inventory Turnover
20,000,000 / 5
4,000,000

4) Average Collection Period: 18 days

Average Collection Period= Accounts Receivable x 360 / Sales
Accounts Receivable= Sales x Avg. Collection Period / 360
20,000,000 x 18 / 360
1,000,000

5) Fixed Asset Turnover: 5 times

Fixed Asset Turnover= Sales / Fixed Assets
Fixed Assets= Sales / Fixed Assets Turnover
20,000,000 / 5
4,000,000

6) Current Ratio: 3 times

Current Ratio= Current Assets / Current Liabilities
Current Liabilities= Current Assets / Current Ratio
6,000,000 / 3
2,000,000