Question

The balance sheet and income statement shown below are for Koski Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.Balance Sheet (Millions of $)Assets 2010Cash and securities $1,290Accounts receivable 9,890Inventories 13,760Total current assets $24,940Net plant and equipment $18,060Total assets $43,000Liabilities and EquityAccounts payable $8,170Notes payable 6,020Accruals 4,730Total current liabilities $18,920Long-term bonds $8,815Total debt $27,735Common stock $5,805Retained earnings 9,460Total common equity $15,265Total liabilities and equity $43,000Income Statement (Millions of $) 2010Net sales $51,600Operating costs except depreciation 48,246Depreciation 903Earnings bef interest and taxes (EBIT) $2,451Less interest 927Earnings before taxes (EBT) $1,524Taxes 533Net income $990Other data:Shares outstanding (millions) 500.00Common dividends (millions of $) $346.67Int rate on notes payable & L-T bonds 6.25%Federal plus state income tax rate 35%Year-end stock price $23.7(a) What is the firm's BEP?(b) What is the firm's profit margin?(c) What is the firm's operating margin?

Answer 1

Answer:

• BEP = EBIT / Total Assets

BEP = $2,451 / $43,000 = 0.057

• Profit Margin = Net Profit / Sales

Profit Margin = $990 / $51,600 = 0.0192

• Operating Margin = Operating Profit / Sales

Operating Margin = $2,451 / $51,600 = 0.0475

• Dividends per share = Dividend paid to Shareholders / Number of shares outstanding

Dividends per share = $346.67 / $500 = 0.69334

• EPS = Net Income available to Shareholders / Number of shares outstanding

EPS = $990 / $500 = $1.98

• P/E ratio = Market price per share / EPS

P/E ratio = $23.7 / 1.98 = 11.97

• Book value per share = Shareholders Equity / Shares outstanding

Book value per share = $15,265 / $500 = $30.53

• Market-to-book ratio = Market Value per share / Book value per share

Market-to-book ratio = $23.7 / S30.53 = 0.7763

• Equity Multiplier = Total Assets / Shareholders Equity

Equity Multiplier = $43,000 / $15,265 = 2.82