# Calculating Debt Ratio with Roa and Roe by zmw59708

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```									Chapter 3: Working With Financial Statements Topics
Why Work With Financial Statements?
Problems with Financial Statement Analysis.
Calculating Ratios and Analyzing with Ratios.
Why do we use Ratios to Analyze Financial Statements
Example 1: What is a Ratio?
CA =                     \$              200.00
CL =                     \$              100.00
CA/CL =                                          Meaning:
CA/CL =

Example 2: Common Sized Financial Statements.
I/S                                          I/S
Net Sales                                100             Net Sales
COGS                                      25             COGS
Other Ex                                  15             Other Ex
EBIT                                      60             EBIT
Int                                       10             Int
Tax                                       17             Tax
NI                                        33             NI

Example 3: Ratios allow us to see relationships between numbers.
Net Sales =              \$            5,000.00
Net Income =             \$              200.00
NI/NS =                                          Meaning:
NI/NS =

Example 4: We can see trends over time without the distortions of different number sizes.
Cash 2001 =             \$             200.00
Total Assets 2001 =     \$           2,000.00
Cash 2008 =             \$             600.00
Total Assets 2008 =     \$           5,000.00
2001 Cash/TA =

2008 Cash/TA =                                   Meaning:

Example 5: We can compare small and big companies without the distortions of different number sizes.
MFST Cash =                             23 B.
MFST TA =                               63 B.
GOOG Cash =                             11 B.
GOOG TA =                               19 B.
MFST Cash/TA =

GOOG Cash/TA =                                   Meaning:

Example 6: We can compare Financial Statements that are in different currencies.
Company 1 Equity =   \$            1,018.74
Company 1 TA =       \$            2,037.49
Company 2 Equity =   £              500.00
Company 2 TA =       £            1,000.00
Company 1 TA/E =
Company 2 TA/E =   Meaning:
Company 1 TA/E =
Company 2 TA/E =
mber sizes.

ns of different number sizes.
Example 1: What is a Ratio?
CA =                     \$              200.00
CL =                     \$              100.00
CA/CL =                 \$2CA/\$1CL               Meaning:                          For every \$1 of CL we have \$2 of CA.
CA/CL =                                       2

Example 2: Common Sized Financial Statements.
I/S                                          I/S
Net Sales                                100             Net Sales           100%                  \$1.00
COGS                                      25             COGS                 25%                  \$0.25
Other Ex                                  15             Other Ex             15%                  \$0.15
EBIT                                      60             EBIT                 60%                  \$0.60
Int                                       10             Int                  10%                  \$0.10
Tax                                       17             Tax                  17%                  \$0.17
NI                                        33             NI                   33%                  \$0.33

Example 3: Ratios allow us to see relationships between numbers.
Net Sales =              \$            5,000.00
Net Income =             \$              200.00
NI/NS =                 \$0.04 NI/ \$1 Sales       Meaning:               For every \$1 that comes in the door, \$0.04 is the pro
NI/NS =                                    0.04

Example 4: We can see trends over time without the distortions of different number sizes.
Cash 2001 =             \$             200.00
Total Assets 2001 =     \$           2,000.00
Cash 2008 =             \$             600.00
Total Assets 2008 =     \$           5,000.00
2001 Cash/TA =                        10.00%
Although cash is 3 times bigger in 2008, as a percent of total as
2008 Cash/TA =                        12.00% Meaning:                          was 10%, but in 2008 it was only 12%.

Example 5: We can compare small and big companies without the distortions of different number sizes.
MFST Cash =                         23 B.
MFST TA =                           63 B.
GOOG Cash =                         11 B.
GOOG TA =                           19 B.
MFST Cash/TA =                       37%
Although MSFT has twice as much cash as GOOG, MSFT has on
GOOG Cash/TA =                       58% Meaning:                       assets in cash, compared to GOOG's 58%

Example 6: We can compare Financial Statements that are in different currencies.
Company 1 Equity =    \$            1,018.74
Company 1 TA =        \$            2,037.49
Company 2 Equity =    £              500.00
Company 2 TA =        £            1,000.00
Company 1 TA/E =     \$2 Assets / \$1 Equity
Company 2 TA/E =   £2 Assets / £1 Equity Meaning:   Both companies are equally leveraged = 2 asset for 1 e
Company 1 TA/E =                    200%
Company 2 TA/E =                    200%
of CL we have \$2 of CA.

\$1.00

es in the door, \$0.04 is the profit

mber sizes.

n 2008, as a percent of total assets in 2001 it
in 2008 it was only 12%.

ns of different number sizes.

ch cash as GOOG, MSFT has only 37% of its
compared to GOOG's 58%
ally leveraged = 2 asset for 1 equity
Wholefoods Market
Income Statement (\$000)
PERIOD ENDING                  Sep 24, 2006   % Terms             Sep 25, 2005
Net Sales                                5,607,376.00                       4,701,289.00
COGS                                     3,647,734.00                       3,052,184.00
Selling General and Administrative       1,484,410.00                       1,285,613.00
Depreciation and Amortization              156,223.00                         133,759.00
Income from Continuing Operations          319,009.00                         229,733.00
Total Other Income/Expenses Net             20,736.00                           9,623.00
Earnings Before Interest And Taxes         339,745.00                         239,356.00
Interest Expense                                32.00                           2,223.00
Income Before Tax                          339,713.00                         237,133.00
Income Tax Expense                         135,885.00                         100,782.00
Net Income                                 203,828.00                         136,351.00

Dividends                                     358,075

Common-Size Income Statement. Compute all line items as a percent of sales.
et
000)
% Terms                 Sep 26, 2004 % Terms
3,864,950.00
2,523,816.00
1,004,089.00
115,157.00
221,888.00
6,456.00
228,344.00
7,249.00
221,095.00
88,438.00
132,657.00

ine items as a percent of sales.
Wholefoods Market
Income Statement (\$000)
PERIOD ENDING               Sep 24, 2006   % Terms                Sep 25, 2005
Net Sales                             5,607,376.00             100.00%      4,701,289.00
COGS                                  3,647,734.00              65.05%      3,052,184.00
Selling General and Administrative    1,484,410.00              26.47%      1,285,613.00
Depreciation and Amortization           156,223.00               2.79%        133,759.00
Income from Continuing Operations       319,009.00               5.69%        229,733.00
Total Other Income/Expenses Net          20,736.00               0.37%          9,623.00
Earnings Before Interest And Taxes      339,745.00               6.06%        239,356.00
Interest Expense                             32.00               0.00%          2,223.00
Income Before Tax                       339,713.00               6.06%        237,133.00
Income Tax Expense                      135,885.00               2.42%        100,782.00
Net Income                              203,828.00               3.63%        136,351.00

Dividends                                  358,075

Safeway
Income Statement (\$000)
PERIOD ENDING               Dec 31, 2006   % Terms                Dec 31, 2005
Net Sales                            40,185,000.00             100.00%     38,416,000.00
COGS                                 28,604,000.00              71.18%     27,303,100.00
Selling General and Administrative    8,989,800.00              22.37%      8,965,500.00
Depreciation and Amortization           991,400.00               2.47%        932,700.00
Income from Continuing Operations     1,599,800.00               3.98%      1,214,700.00
Total Other Income/Expenses Net          36,300.00               0.09%         36,900.00
Earnings Before Interest And Taxes    1,563,500.00               3.89%      1,177,800.00
Interest Expense                        132,033.33               0.33%        134,200.00
Income Before Tax                     1,431,466.67               3.56%      1,043,600.00
Income Tax Expense                      486,699.00               1.21%        354,824.00
Net Income                              944,767.67               2.35%        688,776.00

Dividends                                   96,000
t
00)
% Terms               Sep 26, 2004 % Terms
100.00%    3,864,950.00          100.00%
64.92%    2,523,816.00           65.30%
27.35%    1,004,089.00           25.98%
2.85%      115,157.00            2.98%
4.89%      221,888.00            5.74%
0.20%        6,456.00            0.17%
5.09%      228,344.00            5.91%
0.05%        7,249.00            0.19%
5.04%      221,095.00            5.72%
2.14%       88,438.00            2.29%
2.90%      132,657.00            3.43%

00)
% Terms               Dec 31, 2004 % Terms
100.00%   35,822,900.00          100.00%
71.07%   25,227,600.00           70.42%
23.34%    8,527,900.00           23.81%
2.43%      894,600.00            2.50%
3.16%    1,172,800.00            3.27%
0.10%       32,300.00            0.09%
3.07%    1,140,500.00            3.18%
0.35%      137,066.67            0.38%
2.72%    1,003,433.33            2.80%
0.92%      341,167.00            0.95%
1.79%      662,266.33            1.85%
Wholefoods Market
Income Statement (\$000)
PERIOD ENDING                                          Sep 24, 2006 % Terms      Sep 25, 2005 % Terms
Assets
Current Assets                                              623,981 30.54%           672,529 35.60%
Net Fixed Assets                                          1,419,015 69.46%         1,216,767 64.40%
Total Assets                                              2,042,996 100.00%        1,889,296 100.00%
Liabilities
Current Liabilities                                         509,770    24.95%        418,383   22.14%
Long Term Debt                                              129,083     6.32%        105,237    5.57%
Total Liabilities                                           638,853    31.27%        523,620   27.72%
Stockholders' Equity
Common stock and paid-in surplus                          1,054,883 51.63%           879,377 46.55%
Retained Earnings                                           349,260 17.10%           486,299 25.74%
Total Stockholder Equity                                  1,404,143 68.73%         1,365,676 72.28%
Total Stockholder Equity and Total Liabilities            2,042,996 100.00%        1,889,296 100.00%
TRUE                     TRUE

Common-Size Balance Sheet. Compute all accounts as a percent of total assets.
Sep 26, 2004 % Terms

485,572 31.37%
1,062,144 68.63%
1,547,716 100.00%

334,950   21.64%
244,111   15.77%
579,061   37.41%

537,160 34.71%
431,495 27.88%
968,655 62.59%
1,547,716 100.00%
TRUE
Wholefoods Market
Income Statement (\$000)
PERIOD ENDING                                          Sep 24, 2006 % Terms      Sep 25, 2005 % Terms
Assets
Current Assets                                              623,981 30.54%           672,529 35.60%
Net Fixed Assets                                          1,419,015 69.46%         1,216,767 64.40%
Total Assets                                              2,042,996 100.00%        1,889,296 100.00%
Liabilities
Current Liabilities                                         509,770    24.95%        418,383   22.14%
Long Term Debt                                              129,083     6.32%        105,237    5.57%
Total Liabilities                                           638,853    31.27%        523,620   27.72%
Stockholders' Equity
Common stock and paid-in surplus                          1,054,883 51.63%           879,377 46.55%
Retained Earnings                                           349,260 17.10%           486,299 25.74%
Total Stockholder Equity                                  1,404,143 68.73%         1,365,676 72.28%
Total Stockholder Equity and Total Liabilities            2,042,996 100.00%        1,889,296 100.00%
TRUE                     TRUE

Common-Size Balance Sheet. Compute all accounts as a percent of total assets.
Sep 26, 2004 % Terms

485,572 31.37%
1,062,144 68.63%
1,547,716 100.00%

334,950   21.64%
244,111   15.77%
579,061   37.41%

537,160 34.71%
431,495 27.88%
968,655 62.59%
1,547,716 100.00%
TRUE
Wholefoods Market
Income Statement (\$000)
PERIOD ENDING                          Sunday, September 24, 2006
Net Sales                                                             5,607,376.00
COGS                                                                  3,647,734.00
Depreciation and Amortization                                            156,223.00
Income from Continuing Operations                                        319,009.00
Total Other Income/Expenses Net                                           20,736.00
Earnings Before Interest And Taxes                                       339,745.00
Interest Expense                                                              32.00
Income Before Tax                                                        339,713.00
Income Tax Expense                                                       135,885.00
Net Income                                                               203,828.00

Dividends                                                                    358,075

Wholefoods Market
Balance Sheet (\$000)
PERIOD ENDING                                           Sunday, September 24, 2006
Assets
Cash                                                                        256,164
Account Receivable                                                           82,137
Inventory                                                                   203,727
Other                                                                        81,953
Total Current Assets                                                         623,981
Net Fixed Assets                                                           1,419,015
Total Assets                                                               2,042,996
Liabilities
Accounts Payable                                                            121,857
Other                                                                       387,913
Total Current Liabilities                                                    509,770
Long Term Debt                                                               129,083
Total Liabilities                                                            638,853
Stockholders' Equity
Common stock and paid-in surplus                                           1,054,883
Retained Earnings                                                            349,260
Total Stockholder Equity                                                   1,404,143
Total Stockholder Equity and Total Liabilities                             2,042,996
TRUE
9/24/2006 9/25/2005
Current Ratio   CA/CL
Sunday, September 25, 2005   Quick Ratio     (CA-INV)/CL
4,701,289.00    Cash Ratio      Cash/CL
3,052,184.00
1,285,613.00
133,759.00
229,733.00
9,623.00
239,356.00
2,223.00
237,133.00
100,782.00
136,351.00

54,683
81,668.00

Sunday, September 25, 2005

345,446
66,682
174,848
85,553
672,529
1,216,767
1,889,296

103,348
315,035
418,383
105,237
523,620

879,377
486,299
1,365,676
1,889,296
TRUE
Wholefoods Market
Income Statement (\$000)
PERIOD ENDING                          Sunday, September 24, 2006
Net Sales                                                             5,607,376.00
COGS                                                                  3,647,734.00
Depreciation and Amortization                                            156,223.00
Income from Continuing Operations                                        319,009.00
Total Other Income/Expenses Net                                           20,736.00
Earnings Before Interest And Taxes                                       339,745.00
Interest Expense                                                              32.00
Income Before Tax                                                        339,713.00
Income Tax Expense                                                       135,885.00
Net Income                                                               203,828.00

Dividends                                                                    358,075

Wholefoods Market
Balance Sheet (\$000)
PERIOD ENDING                                           Sunday, September 24, 2006
Assets
Cash                                                                        256,164
Account Receivable                                                           82,137
Inventory                                                                   203,727
Other                                                                        81,953
Total Current Assets                                                         623,981
Net Fixed Assets                                                           1,419,015
Total Assets                                                               2,042,996
Liabilities
Accounts Payable                                                            121,857
Other                                                                       387,913
Total Current Liabilities                                                    509,770
Long Term Debt                                                               129,083
Total Liabilities                                                            638,853
Stockholders' Equity
Common stock and paid-in surplus                                           1,054,883
Retained Earnings                                                            349,260
Total Stockholder Equity                                                   1,404,143
Total Stockholder Equity and Total Liabilities                             2,042,996
TRUE
9/24/2006 9/25/2005
Current Ratio   CA/CL           1.2240    1.6074
Sunday, September 25, 2005   Quick Ratio     (CA-INV)/CL     0.8244    1.1895
4,701,289.00    Cash Ratio      Cash/CL         0.5025    0.8257
3,052,184.00
1,285,613.00
133,759.00
229,733.00
9,623.00
239,356.00
2,223.00
237,133.00
100,782.00
136,351.00

54,683
81,668.00

Sunday, September 25, 2005

345,446
66,682
174,848
85,553
672,529
1,216,767
1,889,296

103,348
315,035
418,383
105,237
523,620

879,377
486,299
1,365,676
1,889,296
TRUE
Chapter 3 Homework - Current Ratio

a          purchase inv.                 No change if paid with cash. If paid on credit and CA/CL >1, it goes down. If paid on credit and CA/CL < 1, it goes up.
No change if paid with cash.

CA (Pay cash \$1, but it goes right back into
CA                                     4 Inventory (\$1) which is also a current asset)                                                    1
CL                                     2 CL
CA/CL=                                 2 CA/CL=

If paid on credit and CA/CL >1, it goes down.
CA                                      4 CA (Inventory goes up by \$1)                                                                    1
CL                                      2 CL (AP goes up by \$1 dollar)                                                                    1
CA/CL=                                  2 CA/CL=

If paid on credit and CA/CL < 1, it goes up.
CA                                      5 CA (Inventory goes up by \$1)                                                                    1
CL                                      6 CL (AP goes up by \$1 dollar)                                                                    1
CA/CL=                     0.833333333 CA/CL=

b          supplier paid                       If CA/CL >1, goes up. If CA/CL < 1, goes down.
If supplier paid and CA/CL >1, goes up.
Before pay supplier                      After pay supplier                                          Cash go down and AP go down
CA                                     4 CA (Cash go down by \$1)                                                                          1
CL                                     2 CL (AP go down by \$1)                                                                            1
CA/CL=                                 2 CA/CL=

If supplier paid and CA/CL < 1, goes down.
Before pay supplier                    After pay supplier                                            Cash go down and AP go down
CA                                   5 CA (Cash go down by \$1)                                                                            1
CL                                   6 CL (AP go down by \$1)                                                                              1
CA/CL=                     0.833333333 CA/CL=

Page 23 of 100
Chapter 3 Homework - Current Ratio

c           short term bank loan is paid          If CA/CL >1, goes up. If CA/CL < 1, goes down.
If short term bank loan is paid and CA/CL >1, goes up.
Before CL loan is paid                       After CL loan is paid                                            Cash go down and CL loan go down
CA                                         4 CA (Cash go down by \$1)                                                                             1
CL                                         2 CL (CL loan go down by \$1)                                                                          1
CA/CL=                                     2 CA/CL=

If short term bank loan is paid and CA/CL <1, goes down.
Before CL loan is paid                     After CL loan is paid                                              Cash go down and CL loan go down
CA                                      5 CA (Cash go down by \$1)                                                                                1
CL                                      6 CL (CL loan go down by \$1)                                                                             1
CA/CL=                       0.833333333 CA/CL=

d         long-debt paid early                                If long-debt has not been classified as current liability, it will go down
If long-debt paid early, then it will CA/CL will go down.
Before LTD loan is paid                    After LTD loan is paid                                           Cash go down by \$1
CA                                       4 CA (Cash go down by \$1)                                                                               1
CL                                       2 CL (CL stay the same)
CA/CL=                                   2 CA/CL=                                                           `

e          AR is Paid                                          No change
AR is paid: Cash go up by \$1 and AR go down by \$1, both are in CA so no change.
Before AR collected                     After AR collected                                                    Cash go up by \$1
CA                                    4 CA (Cash go up by \$1, AR go down by \$1)                                                                  1
CL                                    2 CL (CL stay the same)
CA/CL=                                2 CA/CL=

f           Inv sold at cost                                           No change
If Inventory is sold at cost, Inv will go down by \$1, but cash will go up by \$1: both are CA, so no
change.
Before Inv sold at cost                       After Inv sold at cost                                          Cash go up by \$1
CA                                          4 CA (Cash go up by \$1, Inv by down by \$1)                                                           1
CL                                          2 CL (CL stay the same)
CA/CL=                                      2 CA/CL=

Page 24 of 100
Chapter 3 Homework - Current Ratio

f            Inv sold at profit                             Inv sold at profit, CA/CL will go up.
If Inventory is sold at Profit, Inv will go down by \$1, but cash will go up by \$2: both are CA, so total CA
go up.
Before Inv sold at Profit                      After Inv sold at Profit                                     Cash go up by \$2
CA                                           4 CA (Cash go up by \$2, Inv by down by \$1)                                        2
CL                                           2 CL (CL stay the same)
CA/CL=                                       2 CA/CL=

Long Term Debt Issued To
g         Pay Off Short Term Debt                  LTD traded for CL, CA/CL goes up.
Take out LTD for \$1 to pay off CL of \$1.
Before LTD issued                      After LTD issued                                                  CL down \$1
CA                                   4 CA (No Change)                                                                          1
CL                                   2 CL (CL down \$1)
CA/CL=                               2 CA/CL=

Page 25 of 100
Chapter 3 Homework - Current Ratio

with cash. If paid on credit and CA/CL >1, it goes down. If paid on credit and CA/CL < 1, it goes up.

Increase Inventory

1

Page 26 of 100
Chapter 3 Homework - Current Ratio

AR go down by \$1
1

Inv go down by \$1
1

Page 27 of 100
Chapter 3 Homework - Current Ratio

Inv go down by \$1
1

Page 28 of 100
Chapter 3 Homework - Current Ratio (an)

a          purchase inv.                 No change if paid with cash. If paid on credit and CA/CL >1, it goes down. If paid on credit and CA/CL < 1, it goes up.
No change if paid with cash.

CA (Pay cash \$1, but it goes right back into
CA                                     4 Inventory (\$1) which is also a current asset)             4                                      1
CL                                     2 CL                                                        2
CA/CL=                                 2 CA/CL=                                                    2

If paid on credit and CA/CL >1, it goes down.
CA                                      4 CA (Inventory goes up by \$1)                           5                                        1
CL                                      2 CL (AP goes up by \$1 dollar)                           3                                        1
CA/CL=                                  2 CA/CL=                                          1.666667

If paid on credit and CA/CL < 1, it goes up.
CA                                      5 CA (Inventory goes up by \$1)                           6                                        1
CL                                      6 CL (AP goes up by \$1 dollar)                           7                                        1
CA/CL=                     0.833333333 CA/CL=                                             0.857143

b          supplier paid                       If CA/CL >1, goes up. If CA/CL < 1, goes down.
If supplier paid and CA/CL >1, goes up.
Before pay supplier                      After pay supplier                                            Cash go down and AP go down
CA                                     4 CA (Cash go down by \$1)                                   3                                      1
CL                                     2 CL (AP go down by \$1)                                     1                                      1
CA/CL=                                 2 CA/CL=                                                    3

If supplier paid and CA/CL < 1, goes down.
Before pay supplier                    After pay supplier                                              Cash go down and AP go down
CA                                   5 CA (Cash go down by \$1)                                     4                                      1
CL                                   6 CL (AP go down by \$1)                                       5                                      1
CA/CL=                     0.833333333 CA/CL=                                                    0.8

Page 29 of 100
Chapter 3 Homework - Current Ratio (an)

c           short term bank loan is paid          If CA/CL >1, goes up. If CA/CL < 1, goes down.
If short term bank loan is paid and CA/CL >1, goes up.
Before CL loan is paid                       After CL loan is paid                                              Cash go down and CL loan go down
CA                                         4 CA (Cash go down by \$1)                                        3                                      1
CL                                         2 CL (CL loan go down by \$1)                                     1                                      1
CA/CL=                                     2 CA/CL=                                                         3

If short term bank loan is paid and CA/CL <1, goes down.
Before CL loan is paid                     After CL loan is paid                                                Cash go down and CL loan go down
CA                                      5 CA (Cash go down by \$1)                                           4                                      1
CL                                      6 CL (CL loan go down by \$1)                                        5                                      1
CA/CL=                       0.833333333 CA/CL=                                                           0.8

d         long-debt paid early                                If long-debt has not been classified as current liability, it will go down
If long-debt paid early, then it will CA/CL will go down.
Before LTD loan is paid                    After LTD loan is paid                                           Cash go down by \$1
CA                                       4 CA (Cash go down by \$1)                                        3                                        1
CL                                       2 CL (CL stay the same)                                          2
CA/CL=                                   2 CA/CL=                                                       1.5 `

e          AR is Paid                                          No change
AR is paid: Cash go up by \$1 and AR go down by \$1, both are in CA so no change.
Before AR collected                     After AR collected                                                      Cash go up by \$1
CA                                    4 CA (Cash go up by \$1, AR go down by \$1)                             4                                      1
CL                                    2 CL (CL stay the same)                                               2
CA/CL=                                2 CA/CL=                                                              2

f           Inv sold at cost                                           No change
If Inventory is sold at cost, Inv will go down by \$1, but cash will go up by \$1: both are CA, so no
change.
Before Inv sold at cost                       After Inv sold at cost                                     Cash go up by \$1
CA                                          4 CA (Cash go up by \$1, Inv by down by \$1)                 4                                           1
CL                                          2 CL (CL stay the same)                                    2
CA/CL=                                      2 CA/CL=                                                   2

Page 30 of 100
Chapter 3 Homework - Current Ratio (an)

f            Inv sold at profit                             Inv sold at profit, CA/CL will go up.
If Inventory is sold at Profit, Inv will go down by \$1, but cash will go up by \$2: both are CA, so total CA
go up.
Before Inv sold at Profit                      After Inv sold at Profit                                      Cash go up by \$2
CA                                           4 CA (Cash go up by \$2, Inv by down by \$1)                    5                    2
CL                                           2 CL (CL stay the same)                                       2
CA/CL=                                       2 CA/CL=                                                    2.5

Long Term Debt Issued To
g         Pay Off Short Term Debt                  LTD traded for CL, CA/CL goes up.
Take out LTD for \$1 to pay off CL of \$1.
Before LTD issued                      After LTD issued                                                     CL down \$1
CA                                   4 CA (No Change)                                                   4                       1
CL                                   2 CL (CL down \$1)                                                  1
CA/CL=                               2 CA/CL=                                                           4

Page 31 of 100
Chapter 3 Homework - Current Ratio (an)

with cash. If paid on credit and CA/CL >1, it goes down. If paid on credit and CA/CL < 1, it goes up.

Increase Inventory

1

Page 32 of 100
Chapter 3 Homework - Current Ratio (an)

AR go down by \$1
1

Inv go down by \$1
1

Page 33 of 100
Chapter 3 Homework - Current Ratio (an)

Inv go down by \$1
1

Page 34 of 100
Wholefoods Market
Income Statement (\$000)
PERIOD ENDING                          Sunday, September 24, 2006
Net Sales                                                             5,607,376.00
COGS                                                                  3,647,734.00
Depreciation and Amortization                                            156,223.00
Income from Continuing Operations                                        319,009.00
Total Other Income/Expenses Net                                           20,736.00
Earnings Before Interest And Taxes                                       339,745.00
Interest Expense                                                              32.00
Income Before Tax                                                        339,713.00
Income Tax Expense                                                       135,885.00
Net Income                                                               203,828.00

Dividends                                                                  358,075

Wholefoods Market
Balance Sheet (\$000)
PERIOD ENDING                                           Sunday, September 24, 2006
Assets
Cash                                                                       256,164
Account Receivable                                                          82,137
Inventory                                                                  203,727
Other                                                                       81,953
Total Current Assets                                                        623,981
Net Fixed Assets                                                          1,419,015
Total Assets                                                              2,042,996
Liabilities
Accounts Payable                                                          121,857
Other                                                                     387,913
Total Current Liabilities                                                  509,770
Long Term Debt                                                             129,083
Total Liabilities                                                          638,853
Stockholders' Equity
Common stock and paid-in surplus                                          1,054,883
Retained Earnings                                                           349,260
Total Stockholder Equity                                                  1,404,143
Total Stockholder Equity and Total Liabilities                            2,042,996
TRUE
Sales
Sunday, September 25, 2005                               A
4,701,289.00                                COGS
3,052,184.00                                Inv
1,285,613.00                                AR
133,759.00                                AP
229,733.00
9,623.00
239,356.00    Asset Turnover              Sales/Assets
2,223.00
237,133.00    Inv Turnover                COGS/INV
100,782.00    Days holding Inv            365/Inv Turnover
136,351.00    AR Turnover                 Sale/AR
Days until collect AR       365/AR Turnover
54,683   AP Turnover                 COGS/AP
81,668.00    Days until pay              365/AP Turnover
Operating Cycle in Days     Days holding Inv+Days until collect AR
Cash Cycle in Days          Operating Cycle in Days - Days until pay

Sunday, September 25, 2005   Note About Ratio Analysis For the B/S numbers:
If you are looking forward (into future, like finance does), it may be best to use End Nu
345,446    If you are looking backward (into past, like accounting aoften does), it may be best to
66,682
174,848
85,553
672,529
1,216,767
1,889,296

103,348
315,035
418,383
105,237
523,620

879,377
486,299
1,365,676
1,889,296
TRUE
2006             2005
5,607,376.00     4,701,289.00
2,042,996        1,889,296
3,647,734.00     3,052,184.00
203,727          174,848
82,137           66,682
121,857          103,348

2006             2005

ay be best to use End Numbers
does), it may be best to use (End + Beg)/2, an average amount.
Wholefoods Market
Income Statement (\$000)
PERIOD ENDING                          Sunday, September 24, 2006
Net Sales                                                             5,607,376.00
COGS                                                                  3,647,734.00
Depreciation and Amortization                                            156,223.00
Income from Continuing Operations                                        319,009.00
Total Other Income/Expenses Net                                           20,736.00
Earnings Before Interest And Taxes                                       339,745.00
Interest Expense                                                              32.00
Income Before Tax                                                        339,713.00
Income Tax Expense                                                       135,885.00
Net Income                                                               203,828.00

Dividends                                                                  358,075

Wholefoods Market
Balance Sheet (\$000)
PERIOD ENDING                                           Sunday, September 24, 2006
Assets
Cash                                                                       256,164
Account Receivable                                                          82,137
Inventory                                                                  203,727
Other                                                                       81,953
Total Current Assets                                                        623,981
Net Fixed Assets                                                          1,419,015
Total Assets                                                              2,042,996
Liabilities
Accounts Payable                                                          121,857
Other                                                                     387,913
Total Current Liabilities                                                  509,770
Long Term Debt                                                             129,083
Total Liabilities                                                          638,853
Stockholders' Equity
Common stock and paid-in surplus                                          1,054,883
Retained Earnings                                                           349,260
Total Stockholder Equity                                                  1,404,143
Total Stockholder Equity and Total Liabilities                            2,042,996
TRUE
Sales
Sunday, September 25, 2005                               A
4,701,289.00                                COGS
3,052,184.00                                Inv
1,285,613.00                                AR
133,759.00                                AP
229,733.00
9,623.00
239,356.00    Asset Turnover              Sales/Assets
2,223.00
237,133.00    Inv Turnover                COGS/INV
100,782.00    Days holding Inv            365/Inv Turnover
136,351.00    AR Turnover                 Sale/AR
Days until collect AR       365/AR Turnover
54,683   AP Turnover                 COGS/AP
81,668.00    Days until pay              365/AP Turnover
Operating Cycle in Days     Days holding Inv+Days until collect AR
Cash Cycle in Days          Operating Cycle in Days - Days until pay

Sunday, September 25, 2005   Note About Ratio Analysis For the B/S numbers:
If you are looking forward (into future, like finance does), it may be best to use End Nu
345,446    If you are looking backward (into past, like accounting aoften does), it may be best to
66,682
174,848
85,553
672,529
1,216,767
1,889,296

103,348
315,035
418,383
105,237
523,620

879,377
486,299
1,365,676
1,889,296
TRUE
2006             2005
5,607,376.00     4,701,289.00
2,042,996        1,889,296
3,647,734.00     3,052,184.00
203,727          174,848
82,137           66,682
121,857          103,348

2006            2005
2.74            2.49

17.9050          17.4562
20.3854          20.9095
68.2686          70.5031
5.3465           5.1771
29.9345          29.5331
12.1933          12.3590
25.7319          26.0865
13.5386          13.7275

ay be best to use End Numbers
does), it may be best to use (End + Beg)/2, an average amount.
Wholefoods Market
Income Statement (\$000)
PERIOD ENDING                          Sunday, September 24, 2006
Net Sales                                                             5,607,376.00
COGS                                                                  3,647,734.00
Depreciation and Amortization                                            156,223.00
Income from Continuing Operations                                        319,009.00
Total Other Income/Expenses Net                                           20,736.00
Earnings Before Interest And Taxes                                       339,745.00
Interest Expense                                                              32.00
Income Before Tax                                                        339,713.00
Income Tax Expense                                                       135,885.00
Net Income                                                               203,828.00

Dividends                                                                   358,075

Wholefoods Market
Balance Sheet (\$000)
PERIOD ENDING                                           Sunday, September 24, 2006
Assets
Cash                                                                       256,164
Account Receivable                                                          82,137
Inventory                                                                  203,727
Other                                                                       81,953
Total Current Assets                                                        623,981
Net Fixed Assets                                                          1,419,015
Total Assets                                                              2,042,996
Liabilities
Accounts Payable                                                           121,857
Other                                                                      387,913
Total Current Liabilities                                                   509,770
Long Term Debt                                                              129,083
Total Liabilities                                                           638,853
Stockholders' Equity
Common stock and paid-in surplus                                          1,054,883
Retained Earnings                                                           349,260
Total Stockholder Equity                                                  1,404,143
Total Stockholder Equity and Total Liabilities                            2,042,996
TRUE
2006   2005
Total Liability = TL = D
Sunday, September 25, 2005   Total Assets = TA = A
4,701,289.00    Total Equity = TE = E
3,052,184.00    EBIT
1,285,613.00    Interest
133,759.00
229,733.00                                                       2006
9,623.00    Debt Ratio                 D/A
239,356.00    TL/E = D/E                 D/E
2,223.00    Equity Multiplier          A/E = 1 + D/E
237,133.00    Times Interest Earned      EBIT/Interest
100,782.00    Cash Coverage Ratio        EBDIT/Interest
136,351.00
If you know this:
54,683   D/A =                                        0.2
81,668.00    Find these:
A=
D=
E=
Sunday, September 25, 2005   D/E =
A/E =
345,446    A/E = 1 + D/E =
66,682
174,848
85,553
672,529
1,216,767
1,889,296

103,348
315,035
418,383
105,237
523,620

879,377
486,299
1,365,676
1,889,296
TRUE
2005
Wholefoods Market
Income Statement (\$000)
PERIOD ENDING                          Sunday, September 24, 2006
Net Sales                                                             5,607,376.00
COGS                                                                  3,647,734.00
Depreciation and Amortization                                            156,223.00
Income from Continuing Operations                                        319,009.00
Total Other Income/Expenses Net                                           20,736.00
Earnings Before Interest And Taxes                                       339,745.00
Interest Expense                                                              32.00
Income Before Tax                                                        339,713.00
Income Tax Expense                                                       135,885.00
Net Income                                                               203,828.00

Dividends                                                                   358,075

Wholefoods Market
Balance Sheet (\$000)
PERIOD ENDING                                           Sunday, September 24, 2006
Assets
Cash                                                                       256,164
Account Receivable                                                          82,137
Inventory                                                                  203,727
Other                                                                       81,953
Total Current Assets                                                        623,981
Net Fixed Assets                                                          1,419,015
Total Assets                                                              2,042,996
Liabilities
Accounts Payable                                                           121,857
Other                                                                      387,913
Total Current Liabilities                                                   509,770
Long Term Debt                                                              129,083
Total Liabilities                                                           638,853
Stockholders' Equity
Common stock and paid-in surplus                                          1,054,883
Retained Earnings                                                           349,260
Total Stockholder Equity                                                  1,404,143
Total Stockholder Equity and Total Liabilities                            2,042,996
TRUE
2006          2005
Total Liability = TL = D                    638,853       523,620
Sunday, September 25, 2005   Total Assets = TA = A                     2,042,996     1,889,296
4,701,289.00    Total Equity = TE = E                     1,404,143     1,365,676
3,052,184.00    EBIT                                    339,745.00    239,356.00
1,285,613.00    Interest                                     32.00      2,223.00
133,759.00
229,733.00                                                                2006
9,623.00    Debt Ratio                 D/A                               0.31
239,356.00    TL/E = D/E                 D/E                               0.45
2,223.00    Equity Multiplier          A/E = 1 + D/E                     1.45
237,133.00    Times Interest Earned      EBIT/Interest                10617.03
100,782.00    Cash Coverage Ratio        EBDIT/Interest               15499.00
136,351.00                                                                1.45
If you know this:
54,683   D/A =                                           0.2           0.2
81,668.00    Find these:
A=                                              10
D=                                               2
E=                                               8
Sunday, September 25, 2005   D/E =                                         0.25
A/E =                                         1.25
345,446    A/E = 1 + D/E =
66,682
174,848
85,553
672,529
1,216,767
1,889,296

103,348
315,035
418,383
105,237
523,620

879,377
486,299
1,365,676
1,889,296
TRUE
2005
0.28
0.38
1.38
107.67
167.84
1.38
9/24/2006          9/25/2005
Total Stockholder Equity      1,404,143.00       1,365,676.00
Total Liabilities               638,853.00         523,620.00
Total Assets                  2,042,996.00       1,889,296.00
Net Sales                     5,607,376.00       4,701,289.00
Net Income                      203,828.00         136,351.00

Profit Margin = NI/Sales
Return On Asset = NI/A
Return On Equity = NI/E

Profit Margin    Asset TurnOver    Equity Multiplier
NI/Sales         Sales/Asset       Asset/Equity        ROE Product
9/25/2005
9/24/2006

ROA Product       ROA                 ROE Product
9/25/2005
9/24/2006

ROA                 1+D/E
9/25/2005
9/24/2006
ROE

ROE Product
9/24/2006      9/25/2005
Total Stockholder Equity    1,404,143.00   1,365,676.00
Total Liabilities             638,853.00     523,620.00
Total Assets                2,042,996.00   1,889,296.00
Net Sales                   5,607,376.00   4,701,289.00
Net Income                    203,828.00     136,351.00

Profit Margin = NI/Sales    0.036349979     0.029002897
Return On Asset = NI/A      0.099769163     0.072170269
Return On Equity = NI/E     0.145161853     0.099841397

Profit Margin Asset TurnOver Equity Multiplier
NI/Sales      Sales/Asset     Asset/Equity     ROE Product
9/25/2005 0.029002897      2.488381387       1.383414514 0.099841397
9/24/2006 0.036349979      2.744682809       1.454977164 0.145161853

ROA Product    ROA                ROE Product
9/25/2005    0.072170269
9/24/2006    0.099769163

ROA              1+D/E
9/25/2005         0.072170269 1.383414514
9/24/2006         0.099769163 1.454977164
ROE

ROE Product
0.099841397
0.145161853
Wholefoods Market
Income Statement (\$000)
PERIOD ENDING                          Sunday, September 24, 2006
Net Sales                                                             5,607,376.00
COGS                                                                  3,647,734.00
Depreciation and Amortization                                            156,223.00
Income from Continuing Operations                                        319,009.00
Total Other Income/Expenses Net                                           20,736.00
Earnings Before Interest And Taxes                                       339,745.00
Interest Expense                                                              32.00
Income Before Tax                                                        339,713.00
Income Tax Expense                                                       135,885.00

Net Income                                                               203,828.00

Dividends                                                                    358,075

Wholefoods Market
Balance Sheet (\$000)
PERIOD ENDING                                           Sunday, September 24, 2006
Assets
Cash                                                                        256,164
Account Receivable                                                           82,137
Inventory                                                                   203,727
Other                                                                        81,953
Total Current Assets                                                         623,981
Net Fixed Assets                                                           1,419,015
Total Assets                                                               2,042,996
Liabilities
Accounts Payable                                                            121,857
Other                                                                       387,913
Total Current Liabilities                                                    509,770
Long Term Debt                                                               129,083
Total Liabilities                                                            638,853
Stockholders' Equity
Common stock and paid-in surplus                                           1,054,883
Retained Earnings                                                            349,260
Total Stockholder Equity                                                   1,404,143
Total Stockholder Equity and Total Liabilities                             2,042,996
TRUE
NI 2006
Div Paid in 2006
Sunday, September 25, 2005    Book Value Equity 2006
4,701,289.00
3,052,184.00
1,285,613.00     ROA
133,759.00     ROE
229,733.00     b 2005
9,623.00     Internal Growth Rate
239,356.00     Sustainable Growth Rate
2,223.00
237,133.00     Shares outstanding on Sep 24, 2006
100,782.00     MV 1 share on Sep 24, 2006

136,351.00    EPS =
Price-earnings ratio (Surrogate for Growth)
54,683   Dividends per share =
81,668.00    Market-to-Book Ratio

Sunday, September 25, 2005

345,446
66,682
174,848
85,553
672,529
1,216,767
1,889,296

103,348
315,035
418,383
105,237
523,620

879,377
486,299
1,365,676
1,889,296
TRUE
203,828.00
358,075
1,404,143

2006         2005
NI/Assets                                            0.072170
NI/Equity                                           0.0998414
(ROA*b)/(1-ROA*b)                                                Max company can grow with no external fina
(ROE*b)/(1-ROE*b)                                                Max company can grow with no external fina

139,607
\$59.290

NI/Shares outstanding on Sep 24, 2006 =
(MV per share)/EPS =
Div/Shares outstanding
(MV per share)/(Book value per share)
any can grow with no external financing
any can grow with no external financing except to keep constant D/E ratio
Wholefoods Market
Income Statement (\$000)
PERIOD ENDING                          Sunday, September 24, 2006
Net Sales                                                             5,607,376.00
COGS                                                                  3,647,734.00
Depreciation and Amortization                                            156,223.00
Income from Continuing Operations                                        319,009.00
Total Other Income/Expenses Net                                           20,736.00
Earnings Before Interest And Taxes                                       339,745.00
Interest Expense                                                              32.00
Income Before Tax                                                        339,713.00
Income Tax Expense                                                       135,885.00

Net Income                                                               203,828.00

Dividends                                                                    358,075

Wholefoods Market
Balance Sheet (\$000)
PERIOD ENDING                                           Sunday, September 24, 2006
Assets
Cash                                                                        256,164
Account Receivable                                                           82,137
Inventory                                                                   203,727
Other                                                                        81,953
Total Current Assets                                                         623,981
Net Fixed Assets                                                           1,419,015
Total Assets                                                               2,042,996
Liabilities
Accounts Payable                                                            121,857
Other                                                                       387,913
Total Current Liabilities                                                    509,770
Long Term Debt                                                               129,083
Total Liabilities                                                            638,853
Stockholders' Equity
Common stock and paid-in surplus                                           1,054,883
Retained Earnings                                                            349,260
Total Stockholder Equity                                                   1,404,143
Total Stockholder Equity and Total Liabilities                             2,042,996
TRUE
NI 2006
Div Paid in 2006
Sunday, September 25, 2005    Book Value Equity 2006
4,701,289.00
3,052,184.00
1,285,613.00     ROA
133,759.00     ROE
229,733.00     b 2005
9,623.00     Internal Growth Rate
239,356.00     Sustainable Growth Rate
2,223.00
237,133.00     Shares outstanding on Sep 24, 2006
100,782.00     MV 1 share on Sep 24, 2006

136,351.00    EPS =
Price-earnings ratio (Surrogate for Growth)
54,683   Dividends per share =
81,668.00    Market-to-Book Ratio

Sunday, September 25, 2005

345,446
66,682
174,848
85,553
672,529
1,216,767
1,889,296

103,348
315,035
418,383
105,237
523,620

879,377
486,299
1,365,676
1,889,296
TRUE
203,828.00
358,075
1,404,143

2006          2005
NI/Assets                                                   0.072170
NI/Equity                                                  0.0998414
(ROA*b)/(1-ROA*b)                                               4.52%   Max company can grow with no external fina
(ROE*b)/(1-ROE*b)                                              6.36%    Max company can grow with no external fina

139,607
\$59.290

NI/Shares outstanding on Sep 24, 2006 =             1.46
(MV per share)/EPS =                          40.6092344
Div/Shares outstanding                       2.564878552
(MV per share)/(Book value per share)        5.894911722
any can grow with no external financing
any can grow with no external financing except to keep constant D/E ratio
Grocery Store Industry Statistics       2006 WholeFoods    mrq = most recent quarter
Price / Earnings:                        17.5       40.6092344
Price / Book:                               6      5.894911722
Net Profit Margin (mrq):               1.80%             3.63%
Return on Equity:                    13.10%        0.145161853
Total Debt / Equity:                        1      0.454977164
Long-Term
Description up                         Market Cap   P/E                ROE %         Debt to Equity
Sector: Services                       3471.1B                28.08            14.59           1.51
Companies
Arden Group Inc. (ARDNA)               449.5M                 17.27             30.63           0.01
Blue Square Israel Ltd. (BSI)          601.2M                 11.68             22.57            1.2
Casey's General Stores Inc. (CASY)     1.5B                   19.67             13.43           0.39
Delhaize Group (DEG)                   9.5B                   19.37             11.06            0.8
Diedrich Coffee Inc. (DDRX)            19.9M        NA                         -15.81 NA
Distribution y Servicio S.A. (DYS)     3.4B                   36.76              9.04           0.87
Ingles Markets Inc. (IMKTA)            710.3M                 12.69             17.63           1.63
Kroger Co. (KR)                        19.6B                  17.09             25.03           1.34
Pantry Inc. (PTRY)                     616.8M                 12.91              14.1           3.24
Pathmark Stores Inc. (PTMK)            672.9M       NA                         -23.77           6.11
Publix Super Markets Inc. (PUSH.OB)    NA           NA                           23.5 NA
Ruddick Corp. (RDK)                    1.6B                   21.09             11.29            0.4
Safeway Inc. (SWY)                     14.5B                  16.86             14.99           0.97
SUPERVALU Inc. (SVU)                   7.7B                   14.78              9.48           1.65
Susser Holdings Corporation (SUSS)     349.1M                942.73              0.19           0.72
The Great Atlantic & Pacific T (GAP)   1.3B         NA                           1.91           0.57
Village Super Market Inc. (VLGEA)      339.8M                 17.36             12.48           0.17
Weis Markets Inc. (WMK)                1.1B                   20.13              9.04 NA
Whole Foods Market Inc. (WFMI)         7.0B                   38.03             13.11              0
Winn-Dixie Stores Inc. (WINN)          949.7M                  5.14             108.9           0.03

Long-Term
P/E                ROE %           Debt to Equity
Lowest Quartile                                                 15.3            9.15            0.395
Median                                                         17.43          13.105             0.87
Highest Quartile                                               20.85           16.97            1.425
Wholefoods                                               40.6092344     0.145161853      0.454977164
Net Profit
Price to Book Margin %
Value           (mrq)
-6.07            6.65
6.01             1.8

4.8                5.42
2.1                2.21
2.45                2.33
1.85                1.69
0.86             -18.81
3.29                2.72
2.1                2.67
3.98                1.65
1.67                 0.7
6.56               -1.88
NA                            5.42
2.25                 2.3
2.33                2.22
1.36                1.11
2.1                0.91
2.32               -2.17
2.08                1.91
1.78                3.14
4.87                3.24
1.19                1.23
Net Profit
Price to Book     Margin %
Value             (mrq)
1.78               1.14
2.1               2.06
3.29           2.7075
5.894911722       0.036349979
Homework chapter 3 ST 1, 2, 3 (T)

Question 1:
Question 2:

Wildhack Corp.                                                Wildhack Corp.                                    Current Ratio                 CA/CL
Income Statement (\$ in millions)                                 Balance Sheet (\$ in millions)                           Quick Ratio                   (CA-INV)/CL
For The Year Ended 2010                             As of December 31, 2009 and December 31, 2010                    Cash Ratio                    Cash/CL
Sales                                              \$3,756                                                         2009            2010   Inv Turnover                  COGS/INV
COGS                                                 2453   Assets                                                                       Days holding Inv              365/Inv Turnover
Depreciation                                        \$490    Current assets                                                               AR Turnover                   Sale/AR
EBIT                                                \$813       Cash                                              \$120             \$88    Days until collect AR         365/AR Turnover
Interest Paid                                       \$613       Accounts receivable                                 224             192   AP Turnover                   COGS/AP
Taxable income                                      \$200       Inventory                                           424             368   Days until pay                365/AP Turnover
Taxes (34%)                                          \$68          Total current assets                           \$768            \$648    Operating Cycle in Days       365/Inv Turnover + 365/AR Turnover
Net Income                                          \$132    Fixed assets                                                                 Cash Cycle in Days            Operating Cycle in Days - 365/AP Turnover
Dividends                                   \$46               Net plant and equipment                            5228            5354    Debt Ratio                    TL/TA
Addition to RE                              \$86             Total assets                                       \$5,996          \$6,002    D/E Ratio                     D/E
Dividends payout rate = PO =              34.85%            Liabilities and Owners' Equity                                               Equity Multiplier             A/E = 1 + D/E
Addition to RE payout rate = b =          65.15%            Current liabilities                                                          Times Interest Earned         EBIT/Interest
Accounts payable                                     124             144   Cash Coverage Ratio           EBDIT/Interest
Notes payable                                      1412            1039
Wildhack Corp.                           Total current liabilities                    \$1,536          \$1,183    Profit Margin                 NI/Sales
Income Statement (\$ in millions)            Long-term debt                                       1804            2077    Asset Turnover                Sales/Assets
For The Year Ended 2010                   Total liabilities                                \$3,340          \$3,260                            ROA                                               Product
Sales                                                       Owners' equity                                                               Equity Multiplier             Assets/Equity
COGS                                                          Common stock and paid-in surplus                     300             300                           ROE                                               Product
Depreciation                                                  Retained earnings                                  2356            2442
EBIT                                                              Total owners' equity                         \$2,656          \$2,742    ROA
Interest Paid                                               Total liabilities and owners' equity               \$5,996          \$6,002    ROE
Taxable income                                                                                                                           b
Taxes (34%)                                                                                                                              Internal Growth Rate
Net Income                                                                               Wildhack Corp.                                  Sustainable Growth Rate
Dividends                                                                        Balance Sheet (\$ in millions)
Addition to RE                                                          As of December 31, 2009 and December 31, 2010

Page 62 of 100
Homework chapter 3 ST 1, 2, 3 (an)

Question 1: Standardized Net Income is the same as the Profit Margin Ra
Question 2: The percentage of each dollar earned that goes to COGS is 6

Wildhack Corp.                                                     Wild
Income Statement (\$ in millions)                                     Balance Sh
For The Year Ended 2010                                  As of December 31, 2
Sales                                                \$3,756
COGS                                                    2453
Depreciation                                           \$490
EBIT                                                   \$813
Interest Paid                                          \$613
Taxable income                                         \$200
Taxes (34%)                                             \$68
Net Income                                             \$132
Dividends                                    \$46
Dividends payout rate = PO =              34.85%
Addition to RE payout rate = b =          65.15%

Wildhack Corp.
Income Statement (\$ in millions)
For The Year Ended 2010
Sales                                                100.0%
COGS                                                  65.3%
Depreciation                                          13.0%
EBIT                                                  21.6%
Interest Paid                                         16.3%
Taxable income                                         5.3%
Taxes (34%)                                            1.8%
Net Income                                             3.5%                                  Wild
Dividends                                   1.2%                                     Balance Sh
Addition to RE                              2.3%                            As of December 31, 2

Page 63 of 100
Homework chapter 3 ST 1, 2, 3 (an)

Long-term debt
Total liabilities
Owners' equity
Common stock and paid-in surplu
Retained earnings
Total owners' equity
Total liabilities and owners' equity

Page 64 of 100
Homework chapter 3 ST 1, 2, 3 (an)

d Net Income is the same as the Profit Margin Ratio, NI/Sales. It tells us how much profit we make for every one dollar of sales we make.
age of each dollar earned that goes to COGS is 65.3%.

Wildhack Corp.                                        Current Ratio
Balance Sheet (\$ in millions)                               Quick Ratio
As of December 31, 2009 and December 31, 2010                        Cash Ratio
2009            2010     Inv Turnover
Assets                                                                           Days holding Inv
Current assets                                                                   AR Turnover
Cash                                                 \$120             \$88      Days until collect AR
Accounts receivable                                    224             192     AP Turnover
Inventory                                              424             368     Days until pay
Total current assets                               \$768            \$648      Operating Cycle in Days
Fixed assets                                                                     Cash Cycle in Days
Net plant and equipment                               5228            5354      Debt Ratio
Total assets                                         \$5,996          \$6,002      D/E Ratio
Liabilities and Owners' Equity                                                   Equity Multiplier
Current liabilities                                                              Times Interest Earned
Accounts payable                                        124             144     Cash Coverage Ratio
Notes payable                                         1412            1039
Total current liabilities                         \$1,536          \$1,183      Profit Margin
Long-term debt                                         1804            2077      Asset Turnover
Total liabilities                                   \$3,340          \$3,260                               ROA
Owners' equity                                                                   Equity Multiplier
Common stock and paid-in surplus                        300             300                              ROE
Retained earnings                                     2356            2442
Total owners' equity                              \$2,656          \$2,742      ROA
Total liabilities and owners' equity                 \$5,996          \$6,002      ROE
b
Internal Growth Rate
Wildhack Corp.                                     Sustainable Growth Rate
Balance Sheet (\$ in millions)
As of December 31, 2009 and December 31, 2010
2009            2010
Assets
Current assets
Cash                                                2.00%           1.47%
Accounts receivable                                 3.74%           3.20%
Inventory                                           7.07%           6.13%
Total current assets                             12.81%          10.80%
Fixed assets
Net plant and equipment                            87.19%          89.20%
Total assets                                        100.00%         100.00%

Page 65 of 100
Homework chapter 3 ST 1, 2, 3 (an)

Liabilities and Owners' Equity
Current liabilities
Accounts payable                                     2.07%           2.40%
Notes payable                                       23.55%          17.31%
Total current liabilities                         25.62%          19.71%
Long-term debt                                       30.09%          34.61%
Total liabilities                                   55.70%          54.32%
Owners' equity
Common stock and paid-in surplus                     5.00%           5.00%
Retained earnings                                   39.29%          40.69%
Total owners' equity                              44.30%          45.68%
Total liabilities and owners' equity                100.00%         100.00%

Page 66 of 100
Homework chapter 3 ST 1, 2, 3 (an)

one dollar of sales we make.

CA/CL                                                    0.5478
(CA-INV)/CL                                              0.2367
Cash/CL                                                  0.0744
COGS/INV                                                 6.6658
365/Inv Turnover                                        54.7574      days
Sale/AR                                                 19.5625
365/AR Turnover                                         18.6581      days
COGS/AP                                                 17.0347
365/AP Turnover                                         21.4268      days
365/Inv Turnover + 365/AR Turnover                      73.4156
Operating Cycle in Days - 365/AP Turnover               56.3809      days
TL/TA                                                    0.5432
D/E                                                      1.1889
A/E = 1 + D/E                                            2.1889
EBIT/Interest                                            1.3263
EBDIT/Interest                                           2.1256

NI/Sales                                              0.03514377
Sales/Assets                                           0.6257914
Product   0.02199267
Assets/Equity                                          2.1889132
Product   0.04814004

0.02199267
0.04814004
65.15%
1.45%
3.24%

Page 67 of 100
Homework chapter 3 ST 4 (T)

Assumptions
Name                                               Corwin
Net Income =                                                231
Dividends Paid =                                             77
Total Assets =                                              1400
Total Equity =                                              1200

Corwin ROA
Corwin ROE
Corwin b
Corwin Internal Growth Rate (ROA*b)/(1-ROA*b)
Corwin Sustainable Growth Rate (ROE*b)/(1-ROE*b)

Page 68 of 100
Homework chapter 3 ST 4 (an)

Assumptions
Name                                               Corwin
Net Income =                                                231
Dividends Paid =                                             77
Total Assets =                                              1400
Total Equity =                                              1200

Corwin ROA                                                 0.165
Corwin ROE                                                0.1925
Corwin b                                            0.666666667
Corwin Internal Growth Rate (ROA*b)/(1-ROA*b)            12.36%
Corwin Sustainable Growth Rate (ROE*b)/(1-ROE*b)         14.72%

Page 69 of 100
Chapter 3 Homework - Critical Thinking 3.1 (T)

a

b

c

d

e

f

g

Page 70 of 100
Chapter 3 Homework - Critical Thinking 3.1 (an)

a          purchase inv.                 No change if paid with cash. If paid on credit and CA/CL >1, it goes down. If paid on credit and CA/CL < 1, it goes up.
No change if paid with cash.

CA (Pay cash \$1, but it goes right back into
CA                                     4 Inventory (\$1) which is also a current asset)             4                                       1
CL                                     2 CL                                                        2
CA/CL=                                 2 CA/CL=                                                    2

If paid on credit and CA/CL >1, it goes down.
CA                                      4 CA (Inventory goes up by \$1)                            5                                        1
CL                                      2 CL (AP goes up by \$1 dollar)                            3                                        1
CA/CL=                                  2 CA/CL=                                           1.666667

If paid on credit and CA/CL < 1, it goes up.
CA                                      5 CA (Inventory goes up by \$1)                            6                                        1
CL                                      6 CL (AP goes up by \$1 dollar)                            7                                        1
CA/CL=                     0.833333333 CA/CL=                                              0.857143

b          supplier paid                        If CA/CL >1, goes up. If CA/CL < 1, goes down.
If supplier paid and CA/CL >1, goes up.
Before pay supplier                      After pay supplier                                            Cash go down and AP go down
CA                                     4 CA (Cash go down by \$1)                                   3                                       1
CL                                     2 CL (AP go down by \$1)                                     1                                       1
CA/CL=                                 2 CA/CL=                                                    3

If supplier paid and CA/CL < 1, goes down.
Before pay supplier                    After pay supplier                                              Cash go down and AP go down
CA                                   5 CA (Cash go down by \$1)                                     4                                       1
CL                                   6 CL (AP go down by \$1)                                       5                                       1
CA/CL=                     0.833333333 CA/CL=                                                    0.8

Page 71 of 100
Chapter 3 Homework - Critical Thinking 3.1 (an)

c           short term bank loan is paid          If CA/CL >1, goes up. If CA/CL < 1, goes down.
If short term bank loan is paid and CA/CL >1, goes up.
Before CL loan is paid                        After CL loan is paid                                              Cash go down and CL loan go down
CA                                          4 CA (Cash go down by \$1)                                        3                                      1
CL                                          2 CL (CL loan go down by \$1)                                     1                                      1
CA/CL=                                      2 CA/CL=                                                         3

If short term bank loan is paid and CA/CL <1, goes down.
Before CL loan is paid                      After CL loan is paid                                                Cash go down and CL loan go down
CA                                        5 CA (Cash go down by \$1)                                          4                                      1
CL                                        6 CL (CL loan go down by \$1)                                       5                                      1
CA/CL=                        0.833333333 CA/CL=                                                           0.8

d         long-debt paid early                                 If long-debt has not been classified as current liability, it will go down
If long-debt paid early, then it will CA/CL will go down.
Before LTD loan is paid                    After LTD loan is paid                                            Cash go down by \$1
CA                                       4 CA (Cash go down by \$1)                                         3                                        1
CL                                       2 CL (CL stay the same)                                           2
CA/CL=                                   2 CA/CL=                                                        1.5 `

e          AR is Paid                                           No change
AR is paid: Cash go up by \$1 and AR go down by \$1, both are in CA so no change.
Before AR collected                      After AR collected                                                      Cash go up by \$1
CA                                     4 CA (Cash go up by \$1, AR go down by \$1)                             4                                      1
CL                                     2 CL (CL stay the same)                                               2
CA/CL=                                 2 CA/CL=                                                              2

f           Inv sold at cost                                           No change
If Inventory is sold at cost, Inv will go down by \$1, but cash will go up by \$1: both are CA, so no
change.
Before Inv sold at cost                        After Inv sold at cost                                            Cash go up by \$1
CA                                           4 CA (Cash go up by \$1, Inv by down by \$1)                      4                                      1
CL                                           2 CL (CL stay the same)                                         2
CA/CL=                                       2 CA/CL=                                                        2

Page 72 of 100
Chapter 3 Homework - Critical Thinking 3.1 (an)

f            Inv sold at profit                               Inv sold at profit, CA/CL will go up.
If Inventory is sold at Profit, Inv will go down by \$1, but cash will go up by \$2: both are CA, so total CA
go up.
Before Inv sold at Profit                        After Inv sold at Profit                                     Cash go up by \$2
CA                                             4 CA (Cash go up by \$2, Inv by down by \$1)                   5                    2
CL                                             2 CL (CL stay the same)                                      2
CA/CL=                                         2 CA/CL=                                                   2.5

Page 73 of 100
Chapter 3 Homework - Critical Thinking 3.1 (an)

with cash. If paid on credit and CA/CL >1, it goes down. If paid on credit and CA/CL < 1, it goes up.

Increase Inventory

1

Page 74 of 100
Chapter 3 Homework - Critical Thinking 3.1 (an)

AR go down by \$1
1

Inv go down by \$1
1

Page 75 of 100
Chapter 3 Homework - Critical Thinking 3.1 (an)

Inv go down by \$1
1

Page 76 of 100
#9
COGS =
AP =
Days to pay of AP =
What does a large value imply?

#33
Net Loss
Sales
Progit Margin =
Does the currency type make a difference?

Net Income
Sales
Progit Margin =
#9
41682
8917
days

#33
-£14,537.00
£176,460.00

\$317,628.00
-0.082381276
#9
COGS =                                                                                               41682
AP =                                                                                                  8917
Days to pay of AP =                                                                            78.08418502
It implies that they are having a hard time paying bills - probably
because they are having a cash shortage problem. It could also mean
that they have really large terms from their suppliers (unlikely,
What does a large value imply?   though).

#33
Net Loss                                                                                     -£14,537.00
Sales                                                                                        £176,460.00
Progit Margin =                                                                            -0.082381276
Does the currency type make a
difference?                      No, because when you do the division, the units cancel out.

Net Income                                                                                   -\$26,166.60
Sales                                                                                       \$317,628.00
Progit Margin =                                                                            -0.082381276
days
Chapter 3 Homework - PR 19, 32

19
Tom's Toupees
Profit Margin = NI/Sales                                     0.08
Sales                                                 23,000,000
Debt                                                   9,500,000
TA                                                    24,000,000

ROA = NI/Assets = NI/Sales*Sales/Assets =

32
Fenton Company
ROE                                                           0.17
Sales                                               \$1,950,000.00
D/TA                                                          0.60
Debt                                                   \$75,000.00

TA = Debt/(D/TA) = \$75,000/0.6 =
Equity = A - L =

ROE = ROA*(1+D/E)
ROA = ROE/(1+D/E) = 0.17/(1+75000/50000) =

ROE = NI/E
NI = ROE*E = 0.17*50000 =
ROA = NI/TA = 8500/125000 =

Page 81 of 100
Chapter 3 Homework - PR 19, 32 (an)

19
Tom's Toupees
Profit Margin = NI/Sales                                        0.08
Sales                                                    23,000,000
Debt                                                      9,500,000
TA                                                       24,000,000

ROA = NI/Assets = NI/Sales*Sales/Assets =                    0.0767

32
Fenton Company
ROE                                                              0.17
Sales                                                  \$1,950,000.00
D/TA                                                             0.60
Debt                                                      \$75,000.00

TA = Debt/(D/TA) = \$75,000/0.6 =                        \$125,000.00
Equity = A - L =                                         \$50,000.00

ROE = ROA*(1+D/E)
ROA = ROE/(1+D/E) = 0.17/(1+75000/50000) =                    0.0680

ROE = NI/E
NI = ROE*E = 0.17*50000 =                                  \$8,500.00
ROA = NI/TA = 8500/125000 =                                    0.0680

Page 82 of 100
Homework chapter 3 PR 34, 35, 36

Smolira Golf Corp.                                   Smolira
Income Statement (\$ in millions)                       Balance She
For The Year Ended 2006                    As of December 31, 20
Sales                                             \$87,480
COGS                                                56820
Depreciation                                        3,217
EBIT                                              \$27,443
Interest Paid                                       2,064
Taxable income                                    \$25,379
Taxes (34%)                                         8,629
Net Income                                        \$16,750
Dividends                                \$4,800
Dividends payout rate = PO =             28.66%
Addition to RE payout rate = b =         71.34%

Smolira Golf Corp.
Income Statement (\$ in millions)
For The Year Ended 2006
Sales                                             100.00%
COGS                                               64.95%
Depreciation                                        3.68%
EBIT                                               31.37%
Interest Paid                                       2.36%
Taxable income                                     29.01%
Taxes (34%)                                         9.86%
Net Income                                         19.15%
Dividends                                 5.49%                          Smolira
Addition to RE                           13.66%                      Balance She
Dividends payout rate = PO =             28.66%             As of December 31, 20
Addition to RE payout rate = b =         71.34%

Page 83 of 100
Homework chapter 3 PR 34, 35, 36

Smolira Golf Corp.
Balance Sheet (\$ in millions)
As of December 31, 2005 and December 31, 2006
2005       2006
Assets
Current assets
Cash                                               \$2,612        \$2,783
Accounts receivable                                 3,108         3,780
Inventory                                           9,840        10,970
Total current assets                            \$15,560       \$17,533
Fixed assets
Net plant and equipment                             29,650        41,323
Total assets                                        \$45,210       \$58,856
Liabilities and Owners' Equity
Current liabilities
Accounts payable                                     1,975         2,190
Notes payable                                        1,386         1,438
Other                                                   80           179
Total current liabilities                         \$3,441        \$3,807
Long-term debt                                       12,510        13,840
Total liabilities                                  \$15,951       \$17,647
Owners' equity
Common stock and paid-in surplus                    25,000        25,000
Retained earnings                                    4,259        16,209
Total owners' equity                             \$29,259       \$41,209
Total liabilities and owners' equity                \$45,210       \$58,856
TRUE          TRUE

Page 84 of 100
Homework chapter 3 PR 34, 35, 36

Smolira Golf Corp.
Balance Sheet (\$ in millions)
As of December 31, 2005 and December 31, 2006
2005      2006
Assets
Current assets
Cash                                               5.78%       4.73%
Accounts receivable                                6.87%       6.42%
Inventory                                         21.77%      18.64%
Total current assets                            34.42%      29.79%
Fixed assets
Net plant and equipment                           65.58%       70.21%
Total assets                                       100.00%      100.00%
Liabilities and Owners' Equity
Current liabilities
Accounts payable                                    4.37%       3.72%
Other                                               0.18%       0.30%
Total current liabilities                         7.61%       6.47%
Long-term debt                                      27.67%      23.52%
Total liabilities                                  35.28%      29.98%
Owners' equity
Common stock and paid-in surplus                   55.30%       42.48%
Retained earnings                                   9.42%       27.54%
Total owners' equity                             64.72%       70.02%
Total liabilities and owners' equity               100.00%      100.00%

Page 85 of 100
Homework chapter 3 PR 34, 35, 36

2005     2006
Current Ratio                 CA/CL                                             4.52     4.61
Quick Ratio                   (CA-INV)/CL                                       1.66     1.72
Cash Ratio                    Cash/CL                                           0.76     0.73
Asset Turnover                Sales/Assets                                               1.49
Inv Turnover                  COGS/INV                                                   5.18
Days holding Inv              365/Inv Turnover                                          70.47
AR Turnover                   Sale/AR                                                   23.14
Days until collect AR         365/AR Turnover                                           15.77
AP Turnover                   COGS/AP                                                   25.95
Days until pay                365/AP Turnover                                           14.07
Operating Cycle in Days       365/Inv Turnover + 365/AR Turnover                        86.24
Cash Cycle in Days            Operating Cycle in Days - 365/AP Turnover                 72.17
Debt Ratio                    TL/TA                                             0.35     0.30
D/E Ratio                     D/E                                               0.55     0.43
Equity Multiplier             A/E = 1 + D/E                                     1.55     1.43
Times Interest Earned         EBIT/Interest                                              13.30
Cash Coverage Ratio           EBDIT/Interest                                             14.85
2005      2006
Profit Margin                 NI/Sales                                                 19.15%
Asset Turnover                Sales/Assets                                                1.49
ROA                                           Product          28.46%
Equity Multiplier             Assets/Equity                                               1.43
ROE                                           Product          40.65%

ROA                                                                                    28.46%
ROE                                                                                    40.65%
b                                                                                      71.34%
Internal Growth Rate                                                                   25.48%
Sustainable Growth Rate                                                                40.84%
2005     2006
Shares outstanding                                                    10,000
MV 1 share end 2006                                                       \$24
EPS =                         NI/Shares outstanding =                                   \$1.68
Price-earnings ratio          (MV per share)/EPS =                                     \$14.33
Dividends per share =                                     \$0.48
(MV per share)/(Book value per share)                       5.82

Page 86 of 100
Homework chapter 3 PR 34, 35, 36, 37 (an)

Smolira Golf Corp.                                     Smolira
Income Statement (\$ in millions)                         Balance Shee
For The Year Ended 2006                      As of December 31, 200
Sales                                            \$87,480
COGS                                               56820
Depreciation                                       3,217
EBIT                                             \$27,443
Interest Paid                                      2,064
Taxable income                                   \$25,379
Taxes (34%)                                        8,629
Net Income                                       \$16,750
Dividends                               \$4,800
Dividends payout rate = PO =            28.66%
Addition to RE payout rate = b =        71.34%

Smolira Golf Corp.
Income Statement (\$ in millions)
For The Year Ended 2006
Sales                                            100.00%
COGS                                              64.95%
Depreciation                                       3.68%
EBIT                                              31.37%
Interest Paid                                      2.36%
Taxable income                                    29.01%
Taxes (34%)                                         9.86%
Net Income                                          19.15%
Dividends                                5.49%                            Smolira
Addition to RE                          13.66%                        Balance Shee
Dividends payout rate = PO =            28.66%               As of December 31, 200
Addition to RE payout rate = b =        71.34%

Page 87 of 100
Homework chapter 3 PR 34, 35, 36, 37 (an)

Smolira Golf Corp.
Balance Sheet (\$ in millions)
As of December 31, 2005 and December 31, 2006
2005       2006
Assets
Current assets
Cash                                                \$2,612      \$2,783
Accounts receivable                                  3,108       3,780
Inventory                                            9,840      10,970
Total current assets                             \$15,560     \$17,533
Fixed assets
Net plant and equipment                              29,650      41,323
Total assets                                         \$45,210     \$58,856
Liabilities and Owners' Equity
Current liabilities
Accounts payable                                      1,975       2,190
Notes payable                                         1,386       1,438
Other                                                    80         179
Total current liabilities                          \$3,441      \$3,807
Long-term debt                                        12,510      13,840
Total liabilities                                   \$15,951     \$17,647
Owners' equity
Common stock and paid-in surplus                     25,000      25,000
Retained earnings                                     4,259      16,209
Total owners' equity                              \$29,259     \$41,209
Total liabilities and owners' equity                 \$45,210     \$58,856
TRUE         TRUE

Page 88 of 100
Homework chapter 3 PR 34, 35, 36, 37 (an)

Smolira Golf Corp.
Balance Sheet (\$ in millions)
As of December 31, 2005 and December 31, 2006
2005      2006
Assets
Current assets
Cash                                                5.78%     4.73%
Accounts receivable                                 6.87%     6.42%
Inventory                                          21.77%    18.64%
Total current assets                             34.42%    29.79%
Fixed assets
Net plant and equipment                            65.58%     70.21%
Total assets                                        100.00%    100.00%
Liabilities and Owners' Equity
Current liabilities
Accounts payable                                     4.37%     3.72%
Other                                                0.18%     0.30%
Total current liabilities                          7.61%     6.47%
Long-term debt                                       27.67%    23.52%
Total liabilities                                   35.28%    29.98%
Owners' equity
Common stock and paid-in surplus                    55.30%     42.48%
Retained earnings                                    9.42%     27.54%
Total owners' equity                              64.72%     70.02%
Total liabilities and owners' equity                100.00%    100.00%

Page 89 of 100
Homework chapter 3 PR 34, 35, 36, 37 (an)

2005     2006
Current Ratio                 CA/CL                                             4.52     4.61
Quick Ratio                   (CA-INV)/CL                                       1.66     1.72
Cash Ratio                    Cash/CL                                           0.76     0.73
Asset Turnover                Sales/Assets                                               1.49
Inv Turnover                  COGS/INV                                                   5.18
Days holding Inv              365/Inv Turnover                                          70.47
AR Turnover                   Sale/AR                                                   23.14
Days until collect AR         365/AR Turnover                                           15.77
AP Turnover                   COGS/AP                                                   25.95
Days until pay                365/AP Turnover                                           14.07
Operating Cycle in Days       365/Inv Turnover + 365/AR Turnover                        86.24
Cash Cycle in Days            Operating Cycle in Days - 365/AP Turnover                 72.17
Debt Ratio                    TL/TA                                             0.35     0.30
D/E Ratio                     D/E                                               0.55     0.43
Equity Multiplier             A/E = 1 + D/E                                     1.55     1.43
Times Interest Earned         EBIT/Interest                                          13.30
Cash Coverage Ratio           EBDIT/Interest                                         14.85
2005    2006
Profit Margin                 NI/Sales                                             19.15%
Asset Turnover                Sales/Assets                                            1.49
ROA                                           Product      28.46%
Equity Multiplier             Assets/Equity                                           1.43
ROE                                           Product      40.65%

ROA                                                                                    28.46%
ROE                                                                                    40.65%
b                                                                                      71.34%
Internal Growth Rate                                                                 25.48%
Sustainable Growth Rate                                                              40.84%
2005   2006
Shares outstanding                                                    10,000
MV 1 share end 2006                                                       \$24
EPS =                         NI/Shares outstanding =                                   \$1.68
Price-earnings ratio          (MV per share)/EPS =                                     \$14.33
Dividends per share =                                     \$0.48
(MV per share)/(Book value per share)                       5.82

Page 90 of 100
Homework chapter 3 PR 37

Dispersion of Industry numbers
Lowest Quartile Median Highest Quartile Smolira 2006 Ratios
Current Ratio                 1.2     2.4             4.7
Asset Turnover                1.5     2.6             3.8
D/E                          0.25     0.4             0.6
Profit Margin               8.4% 11.9%            16.3%

Smolira Golf performance

Page 91 of 100
Homework chapter 3 PR 37

a Golf performance

Page 92 of 100
Homework chapter 3 PR 37 (an)

Dispersion of Industry numbers
Lowest Quartile Median Highest Quartile Smolira 2006 Ratios
Current Ratio                 1.2     2.4             4.7                 4.61
Asset Turnover                1.5     2.6             3.8                 1.49
D/E                          0.25     0.4             0.6                 0.43
Profit Margin               8.4% 11.9%            16.3%                19.15%

Smolira Golf performance
Smolira Golf is well above average when it comes to the current ratio. Their current ration is
Perhaps Smolira Golf is 1) building up working capital to acquire some profitable assets, or pe
assets that could become obsolete or 3) they have extra cash that is potentially not earning a
long term assets could. In addition, suppliers and bankers could view this as a sign tha
Their asset turn over is in the lowest quartile. Compared to their industry they are generating
each asset than others in the industry. In comparison, they are not using the assets efficien
bought new assets that have not been depreciated much and thus the rati
Their debt to equity ratio has gone down a small bit over the year. In comparison to the indust
when it comes to debt. Smolira is well leveraged in line with the indus

Smolira's profit margin is in the highest quartile. The ratio of Expenses to sales is amazing. P
at managing expenses, or perhaps they have 2) a superior product that can capture a high p
obfuscating accounting tricks! On the downside, it could be that they are charging too much, a
a high profit margin, it would almost certainly mean that Net Income is lower than it would b

Page 93 of 100
Homework chapter 3 PR 37 (an)

a Golf performance
es to the current ratio. Their current ration is near the highest quartile.
pital to acquire some profitable assets, or perhaps 2) they have current
e extra cash that is potentially not earning a return as much as profitable
rs and bankers could view this as a sign that they could pay bills.
mpared to their industry they are generating fewer dollars in sales from
arison, they are not using the assets efficiently. Or perhaps they have
not been depreciated much and thus the ratio is low.
bit over the year. In comparison to the industry they are near the median
molira is well leveraged in line with the industry.

he ratio of Expenses to sales is amazing. Perhaps they are 1) excellent
a superior product that can capture a high price, or perhaps it is 3) just
could be that they are charging too much, and although this would yield
ean that Net Income is lower than it would be at a lower profit margin.

Page 94 of 100
Homework chapter 3 PR 15, 16, 17 (T)

Bethesda Mining Corp.                             Bethesda Mining Corp.
Income Statement                                    Balance Sheet
For The Year Ended 2006                 As of December 31, 2005 and December 31, 2006
Sales                 \$1,728,347                                                  2005       2006
Net Income              \$148,320     Assets
Current assets
Cash                                     \$19,250     \$21,386
Accounts receivable                       46,381      49,327
Inventory                                109,831     119,834
Total current assets                  \$175,462    \$190,547
Fixed assets
Net plant and equipment                 612,832     702,683
Total assets                             \$788,294    \$893,230
Liabilities and Owners' Equity
Current liabilities
Accounts payable                        \$157,832    \$141,368
Notes payable                             72,891      99,543
Total current liabilities             \$230,723    \$240,911
Long-term debt                            200,000     250,000
Total liabilities                       \$430,723    \$490,911
Owners' equity
Common stock and paid-in surplus         175,000     175,000
Retained earnings                        182,571     227,319
Total owners' equity                  \$357,571    \$402,319
Total liabilities and owners' equity     \$788,294    \$893,230
TRUE       TRUE

Page 95 of 100
Homework chapter 3 PR 15, 16, 17 (T)

Bethesda Mining Corp.
Balance Sheet
As of December 31, 2005 and December 31, 2006
2005   2006
Assets
Current assets
Cash
Accounts receivable
Inventory
Total current assets
Fixed assets
Net plant and equipment
Total assets
Liabilities and Owners' Equity
Current liabilities
Accounts payable
Notes payable
Total current liabilities
Long-term debt
Total liabilities
Owners' equity
Common stock and paid-in surplus
Retained earnings
Total owners' equity
Total liabilities and owners' equity

Page 96 of 100
Homework chapter 3 PR 15, 16, 17 (T)

2005       2006
Current Ratio       CA/CL
Quick Ratio         (CA-INV)/CL
Cash Ratio          Cash/CL
Debt Ratio          TL/TA
D/E Ratio           D/E
Equity Multiplier   A/E = 1 + D/E

Profit Margin       NI/Sales
Asset Turnover      Sales/Assets
ROA        Product
Equity Multiplier Assets/Equity
ROE          Product

ROA
ROE

Page 97 of 100
Homework chapter 3 PR 15, 16, 17 (an)

Bethesda Mining Corp.                             Bethesda Mining Corp.
Income Statement                                    Balance Sheet
For The Year Ended 2006                 As of December 31, 2005 and December 31, 2006
Sales                 \$1,728,347                                                  2005       2006
Net Income              \$148,320     Assets
Current assets
Cash                                    \$19,250     \$21,386
Accounts receivable                      46,381      49,327
Inventory                               109,831     119,834
Total current assets                 \$175,462    \$190,547
Fixed assets
Net plant and equipment                612,832     702,683
Total assets                            \$788,294    \$893,230
Liabilities and Owners' Equity
Current liabilities
Accounts payable                       \$157,832    \$141,368
Notes payable                            72,891      99,543
Total current liabilities            \$230,723    \$240,911
Long-term debt                           200,000     250,000
Total liabilities                      \$430,723    \$490,911
Owners' equity
Common stock and paid-in surplus        175,000     175,000
Retained earnings                       182,571     227,319
Total owners' equity                 \$357,571    \$402,319
Total liabilities and owners' equity    \$788,294    \$893,230
TRUE       TRUE

Page 98 of 100
Homework chapter 3 PR 15, 16, 17 (an)

Bethesda Mining Corp.
Balance Sheet
As of December 31, 2005 and December 31, 2006
2005      2006
Assets
Current assets
Cash                                            2.44%     2.39%
Accounts receivable                             5.88%     5.52%
Inventory                                      13.93%    13.42%
Total current assets                         22.26%    21.33%
Fixed assets
Net plant and equipment                       77.74%    78.67%
Total assets                                    100.00%   100.00%
Liabilities and Owners' Equity
Current liabilities
Accounts payable                               20.02%    15.83%
Notes payable                                   9.25%    11.14%
Total current liabilities                    29.27%    26.97%
Long-term debt                                  25.37%    27.99%
Total liabilities                              54.64%    54.96%
Owners' equity
Common stock and paid-in surplus               22.20%    19.59%
Retained earnings                              23.16%    25.45%
Total owners' equity                         45.36%    45.04%
Total liabilities and owners' equity            100.00%   100.00%

Page 99 of 100
Homework chapter 3 PR 15, 16, 17 (an)

2005          2006
Current Ratio       CA/CL            0.7605        0.7909
Quick Ratio         (CA-INV)/CL      0.2845        0.2935
Cash Ratio          Cash/CL          0.0834        0.0888
Debt Ratio          TL/TA            0.5464        0.5496
D/E Ratio           D/E              1.2046        1.2202
Equity Multiplier   A/E = 1 + D/E    2.2046        2.2202

Profit Margin       NI/Sales                   0.085816101
Asset Turnover      Sales/Assets               1.934940609
ROA        Product               0.166049058
Equity Multiplier Assets/Equity                2.220203371
ROE          Product             0.368662678

ROA                                            0.166049058
ROE                                            0.368662678

Page 100 of 100

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