Problem 1: A company has got $500 in cash and cash equivalents, $300 in inventory and $200 in account receivables. The firm has long term assets of $500. The firm has accounts payables of $200. All other current liabilities total $400. The firm had sales of $10000, EBIT of $5000, interest expenses of $2000 and net income of $800. Compute the following ratios: Current ratio DSO TIE profit margin Total asset turnover Problem 2: A firm has current liabilities of $500. Account receivables are $300 and inventory is $400. All other current assets equal $800. Long term assets are $5000, long term liabities are $2500, sales is $8000, EBIT is $2000, interest expenses are $600 and net income is $100. Compute the following ratios: Current ratio Debt ratio TIE ROA DSO Current ratio = total current assets/total current liabilities Days Sales Outstanding (DSO) = (accounts receivable*365)/sales Times Interest Earned (TIE) ratio = EBIT/interest expense Total asset turnover = sales/total assets Net profit margin = net income/sales Return on total assets (ROA) = net income/total assets Debt ratio = total liabilities/total assets Please note that cash, cash equivalents, such as money market securities, accounts receivable and inventory are part of current assets. Accounts payable is part of current liabilities. Total assets equal total current assets plus long-term assets, and total liabilities equal total current liabilities plus long-term liabilities.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Problem 1: A company has got $500 in cash and cash equivalents, $300 in inventory and $200 in account receivables. The firm has long term assets of $500. The firm has accounts payables of $200. All other current liabilities total $400. The firm had sales of $10000, EBIT of $5000, interest expenses of $2000 and net income of $800. Compute the following ratios: Current ratio DSO TIE profit margin Total asset turnover Problem 2: A firm has current liabilities of $500. Account receivables are $300 and inventory is $400. All other current assets equal $800. Long term assets are $5000, long term liabities are $2500, sales is $8000, EBIT is $2000, interest expenses are $600 and net income is $100. Compute the following ratios: Current ratio Debt ratio TIE ROA DSO Current ratio = total current assets/total current liabilities Days Sales Outstanding (DSO) = (accounts receivable*365)/sales Times Interest Earned (TIE) ratio = EBIT/interest expense Total asset turnover = sales/total assets Net profit margin = net income/sales Return on total assets (ROA) = net income/total assets Debt ratio = total liabilities/total assets Please note that cash, cash equivalents, such as money market securities, accounts receivable and inventory are part of current assets. Accounts payable is part of current liabilities. Total assets equal total current assets plus long-term assets, and total liabilities equal total current liabilities plus long-term liabilities.

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