[11nugget]

Current assets:
Cash $25,000
Marketable securities 45,000
Accounts receivable (net) 122,000
Inventory 155,000
Total current assets $347,000
Investments 20,000
Plant and equipment 475,000
Less: Accumulated depreciation (100,000)
Net plant and equipment 375,000
Total assets $742,000

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $65,000
Notes payable 20,000
Accrued taxes 12,000
Total current liabilities 97,000
Long-term liabilities:
Bonds payable 150,000
Total liabilities 247,000
Stockholders’ equity
Preferred stock, $100 par value 75,000
Common stock, $1 par value 50,000
Capital paid in excess of par 250,000
Retained earnings 120,000
Total stockholders’ equity 495,000
Total liabilities and stockholders’ equity $742,000
NIARA ENTERPRISES
Income Statement
For the Year Ending December 31, 2008

Sales (on credit) $2,200,000
Less: Cost of goods sold 1,300,000
Gross profit 900,000
Less: Selling and administrative expenses 400,000
Operating profit (EBIT) 500,000
Less: Interest expense 25,000
Earnings before taxes (EBT) 475,000
Less: Taxes 190,000
Earnings after taxes (EAT) $285,000
*Includes $10,000 in lease payments.

Profitability ratios
Profit margin =
Return on assets (investment) =
Return on equity =
Assets utilization ratios
Receivable turnover =
Average collection period =
Inventory turnover =
Fixed asset turnover =
Total asset turnover =
Liquidity ratio
Current ratio =
Quick ratio =
Debt utilization ratios
Debt to total assets =
Times interest earned =
Fixed charge coverage =

[ArcSine]

Do you have a question?

[11nugget]

Do you have a question?

Need help solving

[ArcSine]

I'll be glad to. As you know from having read the forum's homework help rules, once you've posted your thoughts and attempts at solving the problem, we'll kick in with the guidance and hints that'll get you to the correct answers.

This ought to get you out of the starting gate: Every one of those ratios is just that... a ratio. Think of 'em as fractions. For each one, you're comparing two numbers by measuring their relative sizes, with one as the numerator of the fraction, and the other as the denominator.

As an example, here's one as a freebie: The Fixed Asset Turnover ratio compares Net Fixed Assets to Sales, in the ratio . So in your example, the Fixed Asset Turnover is approx. 5.87.

For each of the others, look up in your text to see what two amounts constitute each ratio.

Back to you.

[11nugget]

I'll be glad to. As you know from having read the forum's homework help rules, once you've posted your thoughts and attempts at solving the problem, we'll kick in with the guidance and hints that'll get you to the correct answers.

This ought to get you out of the starting gate: Every one of those ratios is just that...a ratio. Think of 'em as fractions. For each one, you're comparing two numbers by measuring their relative sizes, with one as the numerator of the fraction, and the other as the denominator.

As an example, here's one as a freebie: The Fixed Asset Turnover ratio compares Net Fixed Assets to Sales, in the ratio . So in your example, the Fixed Asset Turnover is approx. 5.87.

For each of the others, look up in your text to see what two amounts constitute each ratio.

Back to you.

Ok, I will work on it, Thanks so much!

[ArcSine]

My pleasure, comrade. With a description of what two numbers go into each ratio (found in your text, I'm sure), and a pocket calculator in hand, you can crank 'em out in no time.

[11nugget]

My pleasure, comrade. With a description of what two numbers go into each ratio (found in your text, I'm sure), and a pocket calculator in hand, you can crank 'em out in no time.

I did as many as I could HELP


Profitability ratios
Profit margin = 285,000/2,200.00
Return on assets (investment) = 285000/347000
285,000/2,200000 2,200000/347000
Return on equity = 285000/742000
Assets utilization ratios
Receivable turnover = 18.3
Average collection period =
Inventory turnover = 14.1
Fixed asset turnover = 2.9
Total asset turnover = 6.3
Liquidity ratio=1.41
Current ratio =
Quick ratio =
Debt utilization ratios
Debt to total assets =
Times interest earned =20
Fixed charge coverage =

[morgaine300]

One difficulty I'm seeing is you're not be careful about finding the correct numbers to insert into the equation you see. In some cases, you might not understand the meaning of what is in the equation. But in other cases, the numbers are just outright given in the statements provided and all you need to do is pull it out of there.

You also need to realize that different sources can do some of these equations with variations. That makes it difficult for us to check if you don't include the equation from your book. I don't even like to give these equations out to people because the book may do it differently. They should all be listed in the text -- you need to find them -- that is part of doing the work.

Profit margin = 285,000/2,200.00

Assuming you actually meant the 2,200,000 that is sales, yes.

Return on assets (investment) = 285000/347000
285,000/2,200000 2,200000/347000

Methinks you're trying to do the extended equation here. Is that required? If so, this is a case where you are not digging out the right numbers. The extended equation is:



The "total assets" may say "invested assets."

Now look at what you've done. You've taken net income and divided by current assets. It's not current unless it says current. So you're grabbing something it doesn't say. Then you have net income divided by sales which is OK.

Then you've got sales divided by current assets - that's nothing. There isn't anything in that equation that says that. Even the non-extended version is not that. So I don't know where you are getting that from.

Return on equity = 285000/742000

Here's another one where you are not paying attention to the number you are grabbing. The 742,000 is liabilities and equity. The equation doesn't mention liabilities. The problem outright gives you total equity.

Receivable turnover = 18.3

Actually, 18.03. Don't know if that's a typo or you messed up the calculation.

Average collection period =

There are two different ways to do this and they will come out with different answers. I prefer to see what your book is using. One equation is pretty simple, the other more involved.

Inventory turnover = 14.1

I don't know where you got this. This equation is another one involving just two numbers that you should be able to quite literally just pull out of the information without any problem. The only difficulty here is that it probably wants average inventory, and you don't have a beginning balance so you can't do an average. When that happens, just use what you have.

We can't correct what you're doing if you don't show us the calculation.

Fixed asset turnover = 2.9
Total asset turnover = 6.3

2.9 is total asset turnover, not fixed asset turnover. You may have switched these around. But the problem gives both sales and total assets outright. You just need to plug and chug. Fixed assets are the same as plant assets if that helps.

Liquidity ratio=1.41

? That's a category not a ratio. And that isn't an answer to either of these.

Current ratio =

This is an easy one. Even if you don't know which assets or liabilities are "current," the problem is giving them to you. It seems you need to spend a bit more time looking more closely at the problem. I for one am not going to start giving this stuff away when something like this you could easily get if you'd look more carefully, which is part of your job. You give up too easily.

Quick ratio =

Here's one case where you might not "get" what something is in the equation: quick assets. However, your text ought to give you this. Quick assets are cash, receivables and marketable securities.

Debt to total assets =

Are they using all debt or long-term debt? And "debt" is the same as "liabilities" so you should be able to do that one.

Times interest earned =20

That one's correct.

Fixed charge coverage =

Sorry, never heard of that one.

[ArcSine]

Fixed charge coverage =

That one is "Times Interest Earned's" sister. Use your TIE ratio--which you did correctly--but add the lease expense to both the numerator and the denominator. That'll give you the ratio 510,000 / 35,000.

Inventory turnover = 14.1

On this one, as with all "turnover" ratios, I agree with Morgaine 100% that using averages gives a much more meaningful number. But in this context it looks like we're just given a single balance sheet 'snapshot', so we'll go with what we've got. Inventory Turnover is Cost of Goods Sold divided by Inventory.

Average collection period =

Check your text. You might see a simple formula which utilizes your Receivables Turnover ("RTO"), this way...

(Remember that, as Morgaine pointed out, RTO is 18.03, not 18.3.)

Alternatively, you might be first asked to find "Daily Sales" ("DS"). That's just Sales / 365, which comes out--in your case--to 6,029.40. Then, to calculate Average Collection Period, just divide Accounts Receivable by DS.

You'll get the same Avg Coll Period result either way.

Give 'em another go, and let us know how you make out.

[11nugget]

That one is "Times Interest Earned's" sister. Use your TIE ratio--which you did correctly--but add the lease expense to both the numerator and the denominator. That'll give you the ratio 510,000 / 35,000.

On this one, as with all "turnover" ratios, I agree with Morgaine 100% that using averages gives a much more meaningful number. But in this context it looks like we're just given a single balance sheet 'snapshot', so we'll go with what we've got. Inventory Turnover is Cost of Goods Sold divided by Inventory.

Check your text. You might see a simple formula which utilizes your Receivables Turnover ("RTO"), this way...

(Remember that, as Morgaine pointed out, RTO is 18.03, not 18.3.)

Alternatively, you might be first asked to find "Daily Sales" ("DS"). That's just Sales / 365, which comes out--in your case--to 6,029.40. Then, to calculate Average Collection Period, just divide Accounts Receivable by DS.

You'll get the same Avg Coll Period result either way.

Give 'em another go, and let us know how you make out.

I will work on it some more and post it a little later.

[11nugget]

My pleasure, comrade. With a description of what two numbers go into each ratio (found in your text, I'm sure), and a pocket calculator in hand, you can crank 'em out in no time.

Profitability ratios
Profit margin =
Return on assets (investment) = 285000/347000
285,000/2,200000 2,200000/347000
Return on equity = 285000/742000

Assets utilization ratios
Receivable turnover = 2,200,000/122,000=18.3
Average collection period = 122,000/?
Inventory turnover = 2,200,000/155,000=14.1
Fixed asset turnover = 347,000/97,000=3.5
Total asset turnover = 2,200,000/742000=2.9
Liquidity ratio

Current ratio = 347,000/97000=3.5
Quick ratio = 155000/97000=1.5

Debt utilization ratios
Debt to total assets =
Times interest earned =500,000/25,000=20
Fixed charge coverage =

[11nugget]

One difficulty I'm seeing is you're not be careful about finding the correct numbers to insert into the equation you see. In some cases, you might not understand the meaning of what is in the equation. But in other cases, the numbers are just outright given in the statements provided and all you need to do is pull it out of there.

You also need to realize that different sources can do some of these equations with variations. That makes it difficult for us to check if you don't include the equation from your book. I don't even like to give these equations out to people because the book may do it differently. They should all be listed in the text -- you need to find them -- that is part of doing the work.



Assuming you actually meant the 2,200,000 that is sales, yes.



Methinks you're trying to do the extended equation here. Is that required? If so, this is a case where you are not digging out the right numbers. The extended equation is:



The "total assets" may say "invested assets."

Now look at what you've done. You've taken net income and divided by current assets. It's not current unless it says current. So you're grabbing something it doesn't say. Then you have net income divided by sales which is OK.

Then you've got sales divided by current assets - that's nothing. There isn't anything in that equation that says that. Even the non-extended version is not that. So I don't know where you are getting that from.



Here's another one where you are not paying attention to the number you are grabbing. The 742,000 is liabilities and equity. The equation doesn't mention liabilities. The problem outright gives you total equity.



Actually, 18.03. Don't know if that's a typo or you messed up the calculation.



There are two different ways to do this and they will come out with different answers. I prefer to see what your book is using. One equation is pretty simple, the other more involved.



I don't know where you got this. This equation is another one involving just two numbers that you should be able to quite literally just pull out of the information without any problem. The only difficulty here is that it probably wants average inventory, and you don't have a beginning balance so you can't do an average. When that happens, just use what you have.

We can't correct what you're doing if you don't show us the calculation.



2.9 is total asset turnover, not fixed asset turnover. You may have switched these around. But the problem gives both sales and total assets outright. You just need to plug and chug. Fixed assets are the same as plant assets if that helps.



?? That's a category not a ratio. And that isn't an answer to either of these.



This is an easy one. Even if you don't know which assets or liabilities are "current," the problem is giving them to you. It seems you need to spend a bit more time looking more closely at the problem. I for one am not going to start giving this stuff away when something like this you could easily get if you'd look more carefully, which is part of your job. You give up too easily.



Here's one case where you might not "get" what something is in the equation: quick assets. However, your text ought to give you this. Quick assets are cash, receivables and marketable securities.



Are they using all debt or long-term debt? And "debt" is the same as "liabilities" so you should be able to do that one.



That one's correct.



Sorry, never heard of that one.

Profitability ratios
Profit margin =
Return on assets (investment) = 285000/347000
285,000/2,200000 2,200000/347000
Return on equity = 285000/742000

Assets utilization ratios
Receivable turnover = 2,200,000/122,000=18.3
Average collection period = 122,000/?
Inventory turnover = 2,200,000/155,000=14.1
Fixed asset turnover = 347,000/97,000=3.5
Total asset turnover = 2,200,000/742000=2.9
Liquidity ratio

Current ratio = 347,000/97000=3.5
Quick ratio = 155000/97000=1.5

Debt utilization ratios
Debt to total assets =
Times interest earned =500,000/25,000=20
Fixed charge coverage =

[morgaine300]

You don't need to answer both of us with the same solutions. Once will suffice.

Return on assets (investment) = 285000/347000
285,000/2,200000 2,200000/347000
Return on equity = 285000/742000

Assets utilization ratios
Receivable turnover = 2,200,000/122,000=18.3

You haven't changed any of these. The same thing is wrong with them as what I stated the first time. Some of this requires no understanding -- like return on equity. I stated that you used both liabilities and equity, and liabilities is not part of the equation. Seems as though you just ignored that. If there's something you don't understand, ask for clarification, but ignoring it won't get you to the answers any more quickly.

Average collection period = 122,000/?

By putting the receivables in the numerator, I'm going to assume the book is using the method that divides receivables by average daily sales. ArcSine not only already explained to you how to get the daily sales, but even gave you the answer.

Inventory turnover = 2,200,000/155,000=14.1

Look at the equation you're supposed to be using. It does not say sales for the numerator. Again, this is a case where you have an equation sitting in front of you and all you have to do is find the numbers and insert them. What does it say to use for the numerator?

Fixed asset turnover = 347,000/97,000=3.5

You just did current ratio. Please look at the equation again.

Total asset turnover = 2,200,000/742000=2.9

That one is now almost correct. It's 2.96. If you're going to round it, then it's 3.0.

Current ratio = 347,000/97000=3.5

That one is now correct.

Quick ratio = 155000/97000=1.5

Incorrect. You've used inventory for the numerator. It's quick assets/current liabilities and I told you exactly what quick assets included.

Again, you are having issues with just not looking carefully at the numbers you're pulling off the statements, and also a couple of things that either ArcSine or myself have told you exactly how to do and you've ignored. You need to learn to look more carefully at what you are doing. You're relying on other people too much to point out things which are listed right in front of you.