Business Finance - Chapter 3 (examples)

Phil's Carvings sells its inventory in 93 days, on average. Costs of goods sold for the year are $187,200. What is the average value of the firm's inventory? Assume a 365-day year.

$47,698 Inventory = $187,200 × 93 / 365 = $47,698

Tony's Machinery 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?

.37 Total debt ratio = ($1,292,485 - 815,280) / $1,292,485 = .37

Philippe Organic Farms has total assets of $689,400, long-term debt of $198,375, total equity of $364.182, net fixed assets of $512,100, and sales of $1,021,500. The profit margin is 6.2 percent. What is the current ratio?

1.40 Current ratio = ($689,400 − 512,100) / ($689,400 − 364,182 − 198,375) = 1.40

Assume earnings before interest and taxes of $56,850 and net income of $23,954. The tax rate is 30 percent. What is the times interest earned ratio?

2.51 Times interest earned ratio = $56,850 / {$56,850 − [$23,954 / (1 − .30)]} = 2.51

Delmont Movers has a profit margin of 7.1 percent and net income of $63,700. What is the common-size percentage for the cost of goods sold if that expense amounted to $522,600 for the year?

58.25 percent COGS common-size percentage = $522,600 / ($63,700 / .071) = .5825, or 58.25 percent

KBJ has total assets of $613,000. There are 21,000 shares of stock outstanding with a market value of $13 a share. The firm has a profit margin of 6.2 percent and a total asset turnover of 1.08. What is the price-earnings ratio?

6.65 Price-earnings ratio = $13 /{[.062 × ($613,000 × 1.08)]/21,000} = 6.65

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?

63.41 percent Plowback ratio = [(.082 × $211,000) − (.03 × $211,000)] / (.082 × $211,000) = .6341, or 63.41 percent

Rogers Radiators has net income of $48,200, sales of $947,100, a capital intensity ratio of .87, and an equity multiplier of 1.53. What is the return on equity?

8.95 percent Return on equity = ($48,200/$947,100) × (1/.87) × 1.53 = .0895, or 8.95 percent

ABC Company has inventory of $147,500, equity of $320,000, total assets of $658,800, and sales of $800,780. What is the common-size percentage for the inventory account?

Inventory is a balance sheet account. Common size balance sheet is expressed as a percentage of total assets. Common size percentage for the inventory account = $147,500 / $658,800 = .2239 or 22.39 percent

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?

66.87 percent 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 = .6687, or 66.87 percent

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?

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