Keystone Resources has a net profit margin of 8 percent and earnings after taxes of $2 million. Its current balance sheet is as follows:
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Current Assets
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$ 6,000,000
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Current liabilities
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$ 3,500,000
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Fixed assets
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10,000,000
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Long-term debt
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5,500,000
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Total Assets
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$16,000,000
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Common stock
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2,000,000
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|
|
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Retained earnings
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5,000,000
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|
|
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Total liabilities and Stockholder's equity
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$ 16,000,000
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|
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a. Calculate Keystone's return on stockholder's equity.
b. Industry average ratios are
- Net Profit margin : 10%
- Total asset turnover : 2.0 times
- Equity multiplier : 1.5 times
What does a comparison of Keystone to these averages indicate about the firm's strengths and weaknesses?
c. Keystone has inventories of $3.2 million. Compute the firm's quick ratio.