Financial ratios* As you can see, someone has spilled ink over some of the entries in the balance sheet and income statement of Transylvania Railroad (Table 28.9). Can you use the following information to work out the missing entries? (Note: For this problem, use the following definitions: inventory turnover = COGS/average inventory; receivables collection period = average receivables/|sales/365|.)
- Long-term debt ratio: .4.
- Times-interest-earned: 8.0.
- Current ratio: 1.4.
- Quick ratio: 1.0.
- Cash ratio: .2.
- Inventory turnover: 5.0.
- Receivables collection period: 73 days. Tax rate = .4.
To determine: Various financial ratios to complete the balance sheet.
Explanation of Solution
Given information:
Long term debt ratio is 0.4
Times-interest earned is 8.0
Current ratio is 1.4
Cash ratio is 0.2
Inventory turnover ratio is 5.0
Tax rate is 0.40
Quick ratio is 1.0
Calculation of financial ratios:
Therefore, total assets is $115
Therefore, total current liabilities is $55
Therefore, total current assets is $77
Hence, cash is $11
Therefore, accounts receivables is $44
Therefore, inventory is $22
Therefore, fixed assets are $38
Therefore, long-term debt and equity is $60
Therefore, long-term debt is $24
Therefore, equity is $36
For completing the balance sheet the following ratios are needed,
Therefore, average inventory is $24
Therefore, Cost of goods sold is $120
Therefore, average receivables is $39
Therefore, sales is $195
Therefore, EBIT is $45.
Therefore, interest is $5.625
Therefore, interest is $39.375
Therefore, tax is $15.75
Therefore, company balance sheet is as follows,
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Chapter 28 Solutions
PRIN.OF CORPORATE FINANCE
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