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Question 1. Use this balance sheet and income statement from Carver Enterprises to complete partsa and b:

Balance Sheet

2013

Cash and marketable securities

$490

Accounts receivable

5.990

Inventories

9,550

Current assets

S 16,030

Net property plant and equipment

17,030

Total assets

$33,060

Accounts payable

57,220

Short-tent debt

6,500

Current liabilities

S 14,020

Long-term liabilities

7,010

Total liabilities

S21,030

Total owners' equity

12,030

Total liabilities and owners' equity

$33,060

 

 

Income Statement

2013

Revenues

530,020

Cost of goods sold

(19,950)

Gross profit

S 10,070

Operating expenses

(7,960)

Net operating income

$2,110

Interest expense

(940)

Earnings before taxes

$1,170

Taxes

(425)

Net income

$745

a. Prepare a common size balance sheet for Carver Enterprises. Complete the common-size balance sheet:

Common-Size Balance Sheet

2013



Cash and marketable securities

490


%

Accounts receivable

5,990



Inventories

9,550



Current assets

16,030


%

Net property plant and equipment

17,030



Total assets

33,060


%

Accounts payable

7,220


%

Short-term debt

6,800



Current liabilities

14,020


%

Long-term liabilities

7,010



Total liabilities

21,030


%

Total owners' equity

12,030



Total liabilities and owners' equity

33,060


%

b. Prepare a common-size income statement for Carver Enterprises.Complete the common-size income statement:

Common-Size Income Statement

2013

 

 

Revenues

30,020

 

%

Cost of goods sold

(19,950)



Gross profit

10,070


%

Operating expenses

(7,960)



Net operating income

2,110


%

Interest expense

(940)



Earnings before taxes

1,170


%

Taxes

(425)



Net income

745


%

Question 2. Use this data table of Campbell Industries liabilities and owners' equity to complete partsa and b.

Accounts payable

$ 530,000

Notes payable

$252,000

Notes payable

$782,000

Long- term debt

$1,127,000

Common equity

$4,939,000

Common equity

$6,848,000

a. What percentage of the firm's assets does the firm finance using debt (liabilities)?

b. If Campbell were to purchase a new warehouse for $1.3 million and finance it entirely with long-term debt, what would be the firm's new debt ratio?

Question 3. (Liquidity analysis)Airspot Motors, Inc. has $2,433,200 in current assets and $869,000 in current liabilities. The company's managers want to increase the firm's inventory, which will be financed using short-term debt. How much can the firm increase its inventory without its current ratio falling below 2.1 (assuming all other assets and current liabilities remain constant)?(Round to onedecimal place.)

Question 4. (Efficiency analysis)Baryla Inc. manufactures high quality decorator lamps in a plant located in eastern Tennessee. Last year the firm had sales of $93 million and a gross profit margin of 45 percent.

a. How much inventory can Baryla hold and still maintain an inventory turnover ratio of at least 6.3 times?(Round to onedecimal place.)

b. Currently, some of Baryla's inventory includes $2.3 million of outdated and damaged goods that simply remain in inventory and are not salable. What inventory ratio must the good inventory maintain in order to achieve an overall turnover ratio of at least 6.3 (including the unsalable items)? (Round to onedecimal place.)

Question 5. (Profitability and capital structure analysis)In the year that just ended, Callaway Lighting had sales of $5,470,000 and incurred cost of goods sold equal to $4,460,000. The firm's operating expenses were $128,000 and its increase in retained earnings was $42,000 for the year. There are currently 99,000 common stock shares outstanding and the firm pays a $4.770 dividend per share. The firm has $1,180,000 in interest-bearing debt on which it pays 7.7 percent interest.

a. Assuming the firm's earnings are taxed at 35%, construct the firm's income statement.

Income Statement


Revenues


Cost of Goods Sold


Gross Profit


Operating Expenses


Net Operating Income


Interest Expense


Earnings before Taxes


Income Taxes


Net Income


b. Calculate the firm's operating profit margin and net profit margin.

c. Compute the times interest earned ratio.

What does this tell you about Callaway's ability to pay its interest expense? (Fill in the blank with the times interest earned ratio from above and select the best choice.)

1) Callaway's operating income can fall as much as______ times the interest expense and the company would still be able to service its debt.
2) Callaway's interest expense is _______ times higher than its competitors.
3) Callaway's gross profit can fall as much as ______ times and still be able to service its debt.
4) Callaway's operating income can fall as much as ______ times and still be able to repay its debt.

What is the firm's return on equity? (Select the best choice.)

1) The firm's return on equity is the same as the net profit margin, 9.4%.
2) The firm's return on equity is the sum of the operating profit margin and the net profit margin, 25.5%.
3) There is not enough information to answer this question.
4) The firm's return on equity is the same as the operating profit margin, 16.1%.

Question 6. (Market value analysis) Lei Materials' balance sheet lists total assets of $1.16 billion, $132 million in current liabilities, $415 million in long-term debt, $613 million in common equity, and 58 million shares of common stock. If Lei's current stock price is $52.08, what is the firm's market-to-book ratio?

Question 7. (DuPont analysis)Bryley, Inc. earned a net profit margin of 5.1 percent last year and had an equity multiplier of 3.49. If its total assets are $109 million and its sales are $157 million, what is the firm's return on equity?

Question 8. (Calculating financial ratios) Use the balance sheet and income statement for the J. P. Robard Mfg. Company to calculate the following ratios:

Current ratio



Times interest earned


times

Inventory turnover


times

Total asset turnover



Operating profit margin


%

Operating return on assets


%

Debt ratio


%

Average collection period


days

Fixed asset turnover



Return on equity


%

J. P. Robard Mfg., Inc.
Balance Sheet ($000)

Cash

5460

Accotmts receivable

1,920

Inventories

910

Current assets

$3,2290

Net fixed assets

4.480

Total assets

57 770

Accounts payable

51.170

Accrued expenses

570

Short-term notes parable

260

Current liabilities

$2,000

Long-term debt

1.920

Owners equity

3.850

Total liabilities and otters equity

$7,770

 

 

J. P. Robard Mfg., Inc.
Income Statement ($000)

Net sales (all credit)

$7,990

Cost of goods sold

(3.340)

Gross profit

$4,650

Operating expenses (includes 5500 depreciation)

(3.000)

Net operating income

$1,650

Interest expense

(363)

Earnings before taxes

$1,287

Income taxes (40°0

(515)

Net income

$772

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