Question

Problem 4-7 Financial Ratios (LO3)Here are simplified financial statements for Phone Corporation in a recent year: INCOME STATEMENT(Figures in $ millions) Net sales $ 13,600 Cost of goods sold 4,310 Other expenses 4,162 Depreciation 2,668 Earnings before interest and taxes (EBIT) $ 2,460 Interest expense 710 Income before tax $ 1,750 Taxes (at 30%) 525 Net income $ 1,225 Dividends $ 906 BALANCE SHEET(Figures in $ millions)End of Year Start of Year Assets Cash and marketable securities $ 94 $ 163 Receivables 2,632 2,590 Inventories 212 263 Other current assets 892 957 Total current assets $ 3,830 $ 3,973 Net property, plant, and equipment 20,023 19,965 Other long-term assets 4,266 3,820 Total assets $ 28,119 $ 27,758 Liabilities and shareholders’ equity Payables $ 2,614 $ 3,090 Short-term debt 1,444 1,598 Other current liabilities 836 812 Total current liabilities $ 4,894 $ 5,500 Long-term debt and leases 5,773 5,938 Other long-term liabilities 6,228 6,199 Shareholders’ equity 11,224 10,121 Total liabilities and shareholders’ equity $ 28,119 $ 27,758 Calculate the following financial ratios for Phone Corporation: (Use 365 days in a year. Do not round intermediate calculations. Round your percentage answers "Return on equity", "Return on assets", Return on capital" and "Operating profit margin" to 2 decimal places and the rest to 2 decimal places.) a. Return on equity (Use average equity.) %b. Return on assets (Use after-tax operating income and average assets.) %c. Return on capital (Use after-tax operating income and average capital.) %d. Days in inventory (Use beginning inventory.) dayse. Inventory turnover (Use beginning inventory.) f. Average collection period (Use beginning receivables.) daysg. Operating profit margin (Use after-tax operating income.) %h. Long-term debt ratio (Use end of year values.) i. Total debt ratio (Use end of year values.) j. Times interest earned k. Cash coverage ratio l. Current ratio (Use end of year values.) m. Quick ratio (Use end of year values.)

Answer 1

Answer:

Explanation:

Assets END START

Cash  94,000   163,000  

Accounts Receivable  2.632,000   2.590,000  

Other Current  892,000   957,000  

Inventory  212,000   263,000  

TOTAL CURRENT ASSETS   3.830,000   3.973,000  

Property and Equipment  20.023,000   19.965,000  

Other Long Term Assets  4.266,000   3.820,000  

TOTAL ASSETS   28.119,000   27.758,000

Dividends Payable   2.614,000   3.090,000

Other Current Liabilities   836,000   812,000  

Short Term Loan   1.444,000   1.598,000  

TOTAL CURRENT LIABILITIES   4.894,000   5.500,000  

Long Term Debt   5.773,000   5.938,000  

Long Term Loan   6.228,000   6.199,000

TOTAL LIABILITIES   16.895,000   17.637,000  

Equity  

Stockholders' Equity   11.224,000   10.121,000  

TOTAL EQUITY   11.224,000   10.121,000  

TOTAL EQUITY & LIABILITIES   28.119,000   27.758,000  

CAPITAL EMPLOYED   23.225,000   22.258,000  

CURRENT RATIO  0,78  

QUICK RATIO  0,74  

CASH RATIO  0,02  

PROFIT MARGIN 9,01%

TIMES INTEREST EARNED RATIO  3,46  

LONG TERM DEBT RATIO 20,53%

TOTAL DEBT RATIO 60,08%

RETURN ON ASSETS 4,38%

RETURN ON EQUITY 11,48%

RETURN ON CAPITAL 5,39%

INVENTORY TURNOVER  16,39  

AVERAGE COLLECTION  69,51  

Receivables Turnover  5,25

DIO - Days of Inventory Outstanding  22,27  

Average Inventory  263,000  

Cost Of Goods  4.310,000