FIN 226 Practice for Quiz #1: Questions 131 - 172

Tessler Farms has a return on equity of 11.28 percent, a debt-equity ratio of 1.03, and a total asset turnover of .87. What is the return on assets?

Return on assets = .1128 ÷ (1 + 1.03) = 5.56%

A firm has net income of $4,238 and interest expense of $898. The tax rate is 21 percent. What is the firm's times interest earned ratio?

Times interest earned ratio = {[$4,238 ÷ (1 − .21)] + $898} ÷ $898 = 6.97

Whitt's BBQ has sales of $1,318,000, a profit margin of 7.4 percent, and a capital intensity ratio of .78. What is the total asset turnover rate?

Total asset turnover = 1 ÷ .78 = 1.28

Al's Markets earns $.12 in profit for every $1 of equity and borrows $.65 for every $1 of equity. What is the firm's return on assets?

ROE = ($.12 ÷ $1) = ROA × [($1 + .65) ÷ $1] ROA = .0727, or 7.27%

Peterboro Supply has a current accounts receivable balance of $391,648. Credit sales for the year just ended were $5,338,411. How long did it take on average for credit customers to pay off their accounts during the past year? Assume a 365-day year.

Days' sales in receivables = 365 ÷ ($5,338,411 ÷ $391,648) = 26.78 days

It is important to review not just the current ratio, but also the quick ratio and cash ratio because:

a low current ratio may not necessarily indicate a problem with a company.

Ennis Hotel Group has $126,500 in total assets, depreciation of 3,500, and interest of $1,850. The total asset turnover rate is 1.02. Earnings before interest and taxes are equal to 24 percent of sales. What is the cash coverage ratio?

Cash coverage ratio = [(.24 × 1.02 × $126,500) + $3,500] ÷ $1,850 = 18.63

Copper Hill Winery has inventory of $431,700, accounts payable of $94,200, cash of $51,950, and accounts receivable of $103,680. What is the cash ratio?

Cash ratio = $51,950 ÷ $94,200 = .55

A firm has net working capital of $8,200 and current assets of $37,500. What is the current ratio?

Current ratio = $37,500 ÷ ($37,500 − 8,200) = 1.28

The Blue Heron Company has a return on equity of 23.62 percent, an equity multiplier of 1.48, and a capital intensity ratio of 1.06. What is the profit margin?

Profit margin = .2362 ÷ [(1 ÷ 1.06) × 1.48] = 16.92%

Varya's Dance Supply has total assets of $550,000 and total debt of $295,000. What is the equity multiplier?

Equity multiplier = $550,000 ÷ ($550,000 − 295,000) = 2.16

Lilly K's has total assets of $726,030, net fixed assets of $556,740, long-term debt of $437,265, and total debt of $583,050. If inventory is $234,765, what is the current ratio?

Current ratio = ($726,030 − 556,740) ÷ ($583,050 − 437,265) = 1.16

Firefly, Incorporated, has sales of $1,366,400, cost of goods sold of $897,575, and inventory of $148,630. What is the inventory turnover rate?

Inventory turnover = $897,575 ÷ $148,630 = 6.04 times

Lopez Technology has accounts receivable of $35,680, total assets of $538,500, cost of goods sold of $325,400, and a capital intensity ratio of .90. What is the accounts receivable turnover rate?

Accounts receivable turnover = ($538,500 ÷ .90) ÷ $35,680 = 16.77

Xinya Controls has a profit margin of 7.5 percent and net income of $112,545. What is the common-size percentage for the cost of goods sold if that expense amounted to $855,425 for the year?

COGS common-size percentage = $855,245 ÷ ($112,545 ÷ .075) = 57.01%

Discount Outlet has net income of $389,100, a profit margin of 2.8 percent, and a return on assets of 8.6 percent. What is the capital intensity ratio?

Capital intensity ratio = ($389,100 ÷ .086) ÷ ($389,100 ÷ .028) = .33

Napolitano Art Gallery sells its inventory in 68 days, on average. Costs of goods sold for the year are $313,256. What is the average value of the firm's inventory? Assume a 365-day year.

Inventory = $313,256 × 68 ÷ 365 = $58,360

Pizza Pie maintains a constant debt-equity ratio of .55. The firm had net income of $14,800 for the year and paid $12,000 in dividends. The firm has total assets of $248,000. What is the sustainable growth rate?

Sustainable growth rate = {[($14,800 ÷ $248,000) × (1 + .55)] × [($14,800 − 12,000) ÷ $14,800]} ÷ (1 − {[($14,800 ÷ $248,000) × (1 + .55)] × [($14,800 − 12,000) ÷ $14,800]}) = 1.78%

Sunshine Rentals has a debt-equity ratio of .67. The return on assets is 8.1 percent, and total equity is $595,000. What is the net income?

Net income = .081 × (1 + .67) × $595,000 = $80,485.65

Lawler's BBQ has sales of $311,800, a profit margin of 3.9 percent, and dividends of $4,500. What is the plowback ratio?

Plowback ratio = 1 − [$4,500 ÷ (.039 × $311,800)] = 62.99%

Western Hardwoods has total equity of $318,456, a profit margin of 3.79 percent, an equity multiplier of 1.68, and a total asset turnover of .97. What is the amount of the firm's sales?

Sales = $318,456 × 1.68 × .97 = $518,956

Donegal's Industrial Products wishes to maintain a growth rate of 6 percent a year, a debt-equity ratio of .45, and a dividend payout ratio of 30 percent. The ratio of total assets to sales is constant at 1.25. What profit margin must the firm achieve?

Sustainable growth = .06 = {[PM × (1 ÷ 1.25) × (1 + .45)] × (1 − .30)} ÷ (1 − {[PM × (1 ÷ 1.25) × (1 + .45)] × (1 − .30)}) = 6.97%

The Donut Hut has sales of $68,000, current assets of $11,300, net income of $5,100, net fixed assets of $54,900, total debt of $23,800, and dividends of $800. What is the sustainable growth rate?

Sustainable growth rate = {[$5,100 ÷ ($11,300 + 54,900 − 23,800)] × [($5,100 − 800) ÷ $5,100]} ÷ (1 − {[$5,100 ÷ ($11,300 + 54,900 − 23,800)] × [($5,100 − 800) ÷ $5,100]}) = 11.29%

A firm has inventory of $46,500, accounts payable of $17,400, cash of $1,250, net fixed assets of $318,650, long-term debt of $109,500, and accounts receivable of $16,600. What is the common-size percentage of the equity?

Total assets = Total liabilities and equity = $1,250 + 16,600 + 46,500 + 318,650 = $383,000 Equity common-size percentage = ($383,000 − 17,400 − 109,500) ÷ $383,000 = 66.87%

Efran's Auto Repair has total equity of $815,280, long-term debt of $391,900, net working capital of $49,500, and total assets of $1,292,485. What is the total debt ratio?

Total debt ratio = ($1,292,485 − 815,280) ÷ $1,292,485 = .37

Financial ratios are traditionally grouped in all but which of the following categories?

Working capital management

DeSmet Real Estate has cash of $7,800, accounts receivable of $15,600, inventory of $48,850, and net working capital of $5,000. What is the cash ratio?

Cash ratio = $7,800 ÷ ($7,800 + 15,600 + 48,850 − 5,000) = .12

Simmons Medical Group has sales of $980,000, cost of goods sold of $765,250, and accounts receivable of $88,640. How long, on average, does it take the firm's customers to pay for their purchases? Assume a 365-day year.

Days' sales in receivables = 365 ÷ ($980,000 ÷ $88,640) = 33.01 days

The Texas Rustler has total assets of $645,563 and an equity multiplier of 1.22. What is the debt-equity ratio?

Debt-equity ratio = 1.22 − 1 = .22

Element Trucking has total sales of $911,300, a total asset turnover of 1.1, and a profit margin of 5.87 percent. Currently, the firm has 18,500 shares outstanding. What are the earnings per share?

Earnings per share = (.0587 × $911,300) ÷ 18,500 = $2.89

A firm wishes to maintain an internal growth rate of 4.5 percent and a dividend payout ratio of 60 percent. The current profit margin is 7.5 percent, and the firm uses no external financing sources. What must be the total asset turnover?

Internal growth rate = .045 = [.075 × TAT × (1 − .60)] ÷ {1 − [.075 × TAT × (1 − .60)]} TAT = 1.44

Lookin' Up earns $.094 in profit on every $1 of sales and has $1.21 in assets for every $1 of sales. The firm pays out 45 percent of its profits to its shareholders. What is the internal growth rate?

Internal growth rate = [($.094 ÷ $1.21) × (1 − .45)] ÷ {1 − [($.094 ÷ $1.21) × (1 − .45)]} = 4.46%

Fried Donuts has sales of $764,900, total assets of $687,300, total equity of $401,300, net income of $68,200, and dividends paid of $27,000. What is the internal growth rate?

Internal growth rate = {($68,200 ÷ $687,300) × [($68,200 − 27,000) ÷ $68,200]} ÷ (1 − {($68,200 ÷ $687,300) × [($68,200 − 27,000) ÷ $68,200]}) = 6.38%

High Road Transport has a current stock price of $5.60. For the past year, the company had net income of $287,400, total equity of $992,300, sales of $1,511,000, and 750,000 shares outstanding. What is the market-to-book ratio?

Market-to-book = $5.60 ÷ ($992,300 ÷ 750,000) = 4.23

Castaway Resort common stock is selling for $42.50 a share. The company has earnings per share of $.79 and a book value per share of $17.50. What is the market-to-book ratio?

Market-to-book ratio = $42.50 ÷ $17.50 = 2.43

Adell Furniture has a profit margin of 8.2 percent on sales of $211,000. The common size ratio of dividends is .03 and total assets are $196,000. What is the plowback ratio?

Plowback ratio = [(.082 × $211,000) − (.03 × $211,000)] ÷ (.082 × $211,000) = 63.41%

If sales are $211,000, the profit margin is 6.3 percent, and the capital intensity ratio is .94, what is the return on assets?

Return on assets = (.063 × $211,000) ÷ (.94 × $211,000) = .0670, or 6.70%

Prime Electronic Sales has sales of $723,450, total equity of $490,000, a profit margin of 9.3 percent, and a debt-equity ratio of .42. What is the return on assets?

Return on assets = (.093 × $723,450) ÷ [(1 + .42) × $490,000)] = .0967, or 9.67%

The Inside Door has total debt of $208,600, total equity of $343,560, and a return on equity of 13.27 percent. What is the return on assets?

Return on assets = (.1327 × $343,560) ÷ ($208,600 + 343,560) = 8.26%

Mercier United has net income of $128,470. There are currently 32.67 days' sales in receivables. Total assets are $1,419,415, total receivables are $122,306, and the debt-equity ratio is .40. What is the return on equity?

Return on equity = ($128,470 ÷ $1,419,415) × (1 + .40) = 12.67%

The Saw Mill has a return on assets of 7.92 percent, a total asset turnover rate of 1.18, and a debt-equity ratio of 1.46. What is the return on equity?

Return on equity = .0792 × (1 + 1.46) = 19.48%

Computer Geeks has sales of $618,900, a profit margin of 13.2 percent, a total asset turnover rate of 1.54, and an equity multiplier of 1.06. What is the return on equity?

Return on equity = .132 × 1.54 × 1.06 = 21.55%