Chapter 3 Working with Financial Statements
1.
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Activities of a firm which require the spending of cash are known as:
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2.
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The sources and uses of cash over a stated period of time are reflected on the:
C.
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tax reconciliation statement.
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D.
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statement of cash flows.
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E.
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statement of operating position.
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3.
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A common-size income statement is an accounting statement that expresses all of a firm's expenses as percentage of:
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4.
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Which one of the following standardizes items on the income statement and balance sheet relative to their values as of a chosen point in time?
A.
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statement of standardization
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B.
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statement of cash flows
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C.
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common-base year statement
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E.
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base reconciliation statement
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5.
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Relationships determined from a firm's financial information and used for comparison purposes are known as:
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6.
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The formula which breaks down the return on equity into three component parts is referred to as which one of the following?
B.
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profitability determinant
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E.
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equity performance formula
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7.
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The U.S. government coding system that classifies a firm by the nature of its business operations is known as the:
B.
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Standard & Poor's 500.
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C.
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Standard Industrial Classification code.
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E.
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Government Engineered Coding System.
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8.
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Which one of the following is a source of cash?
A.
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increase in accounts receivable
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B.
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decrease in notes payable
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C.
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decrease in common stock
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D.
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increase in accounts payable
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9.
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Which one of the following is a use of cash?
A.
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increase in notes payable
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C.
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increase in long-term debt
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D.
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decrease in accounts receivables
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E.
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decrease in common stock
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10.
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Which one of the following is a source of cash?
A.
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repurchase of common stock
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E.
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granting credit to a customer
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11.
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Which one of the following is a source of cash?
A.
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increase in accounts receivable
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B.
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decrease in common stock
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C.
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decrease in long-term debt
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D.
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decrease in accounts payable
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12.
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On the Statement of Cash Flows, which of the following are considered financing activities?
I. increase in long-term debt
II. decrease in accounts payable
III. interest paid
IV. dividends paid
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13.
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On the Statement of Cash Flows, which of the following are considered operating activities?
I. costs of goods sold
II. decrease in accounts payable
III. interest paid
IV. dividends paid
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14.
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According to the Statement of Cash Flows, a decrease in accounts receivable will _____ the cash flow from _____ activities.
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15.
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According to the Statement of Cash Flows, an increase in interest expense will _____ the cash flow from _____ activities.
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16.
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On a common-size balance sheet all accounts are expressed as a percentage of:
C.
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total equity for the base year.
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D.
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total assets for the current year.
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E.
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total assets for the base year.
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17.
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On a common-base year financial statement, accounts receivables will be expressed relative to which one of the following?
B.
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current year total assets
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D.
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base-year total assets
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E.
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base-year accounts receivables
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18.
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A firm uses 2011 as the base year for its financial statements. The common-size, base-year statement for 2012 has an inventory value of 1.08. This is interpreted to mean that the 2012 inventory is equal to 108 percent of which one of the following?
D.
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2011 inventory expressed as a percent of 2011 total assets
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E.
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2012 inventory expressed as a percent of 2012 total assets
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19.
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Which of the following ratios are measures of a firm's liquidity?
I. cash coverage ratio
II. interval measure
III. debt-equity ratio
IV. quick ratio
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20.
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An increase in current liabilities will have which one of the following effects, all else held constant? Assume all ratios have positive values.
A.
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increase in the cash ratio
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B.
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increase in the net working capital to total assets ratio
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C.
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decrease in the quick ratio
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D.
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decrease in the cash coverage ratio
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E.
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increase in the current ratio
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21.
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An increase in which one of the following will increase a firm's quick ratio without affecting its cash ratio?
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22.
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A supplier, who requires payment within ten days, should be most concerned with which one of the following ratios when granting credit?
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23.
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A firm has an interval measure of 48. This means that the firm has sufficient liquid assets to do which one of the following?
A.
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pay all of its debts that are due within the next 48 hours
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B.
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pay all of its debts that are due within the next 48 days
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C.
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cover its operating costs for the next 48 hours
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D.
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cover its operating costs for the next 48 days
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E.
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meet the demands of its customers for the next 48 hours
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24.
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Ratios that measure a firm's financial leverage are known as _____ ratios.
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25.
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Which one of the following statements is correct?
A.
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If the total debt ratio is greater than .50, then the debt-equity ratio must be less than 1.0.
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B.
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Long-term creditors would prefer the times interest earned ratio be 1.4 rather than 1.5.
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C.
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The debt-equity ratio can be computed as 1 plus the equity multiplier.
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D.
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An equity multiplier of 1.2 means a firm has $1.20 in sales for every $1 in equity.
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E.
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An increase in the depreciation expense will not affect the cash coverage ratio.
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26.
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If a firm has a debt-equity ratio of 1.0, then its total debt ratio must be which one of the following?
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27.
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The cash coverage ratio directly measures the ability of a firm's revenues to meet which one of its following obligations?
C.
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payment of interest to a lender
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D.
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payment of principle to a lender
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E.
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payment of a dividend to a shareholder
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28.
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Jasper United had sales of $21,000 in 2011 and $24,000 in 2012. The firm's current accounts remained constant. Given this information, which one of the following statements must be true?
A.
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The total asset turnover rate increased.
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B.
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The days' sales in receivables increased.
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C.
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The net working capital turnover rate increased.
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D.
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The fixed asset turnover decreased.
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E.
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The receivables turnover rate decreased.
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29.
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The Corner Hardware has succeeded in increasing the amount of goods it sells while holding the amount of inventory on hand at a constant level. Assume that both the cost per unit and the selling price per unit also remained constant. This accomplishment will be reflected in the firm's financial ratios in which one of the following ways?
A.
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decrease in the inventory turnover rate
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B.
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decrease in the net working capital turnover rate
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C.
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no change in the fixed asset turnover rate
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D.
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decrease in the day's sales in inventory
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E.
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no change in the total asset turnover rate
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30.
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Dee's has a fixed asset turnover rate of 1.12 and a total asset turnover rate of 0.91. Sam's has a fixed asset turnover rate of 1.15 and a total asset turnover rate of 0.88. Both companies have similar operations. Based on this information, Dee's must be doing which one of the following?
A.
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utilizing its fixed assets more efficiently than Sam's
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B.
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utilizing its total assets more efficiently than Sam's
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C.
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generating $1 in sales for every $1.12 in net fixed assets
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D.
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generating $1.12 in net income for every $1 in net fixed assets
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E.
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maintaining the same level of current assets as Sam's
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31.
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Ratios that measure how efficiently a firm manages its assets and operations to generate net income are referred to as _____ ratios.
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32.
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If a firm produces a twelve percent return on assets and also a twelve percent return on equity, then the firm:
A.
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may have short-term, but not long-term debt.
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B.
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is using its assets as efficiently as possible.
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C.
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has no net working capital.
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D.
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has a debt-equity ratio of 1.0.
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E.
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has an equity multiplier of 1.0.
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33.
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Which one of the following will decrease if a firm can decrease its operating costs, all else constant?
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34.
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Al's has a price-earnings ratio of 18.5. Ben's also has a price-earnings ratio of 18.5. Which one of the following statements must be true if Al's has a higher PEG ratio than Ben's?
A.
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Al's has more net income than Ben's.
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B.
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Ben's is increasing its earnings at a faster rate than the Al's.
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C.
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Al's has a higher market value per share than does Ben's.
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D.
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Ben's has a lower market-to-book ratio than Al's.
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E.
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Al's has a higher net income than Ben's.
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35.
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Tobin's Q relates the market value of a firm's assets to which one of the following?
A.
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initial cost of creating the firm
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B.
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current book value of the firm
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C.
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average asset value of similar firms
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D.
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average market value of similar firms
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E.
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today's cost to duplicate those assets
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36.
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The price-sales ratio is especially useful when analyzing firms that have which one of the following?
A.
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volatile market prices
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37.
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Shareholders probably have the most interest in which one of the following sets of ratios?
A.
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return on assets and profit margin
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B.
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long-term debt and times interest earned
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C.
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price-earnings and debt-equity
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D.
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market-to-book and times interest earned
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E.
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return on equity and price-earnings
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38.
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Which one of the following accurately describes the three parts of the Du Pont identity?
A.
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operating efficiency, equity multiplier, and profitability ratio
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B.
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financial leverage, operating efficiency, and profitability ratio
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C.
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equity multiplier, profit margin, and total asset turnover
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D.
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debt-equity ratio, capital intensity ratio, and profit margin
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E.
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return on assets, profit margin, and equity multiplier
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39.
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An increase in which of the following will increase the return on equity, all else constant?
I. sales
II. net income
III. depreciation
IV. total equity
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40.
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Which of the following can be used to compute the return on equity?
I. Profit margin × Return on assets
II. Return on assets × Equity multiplier
III. Net income/Total equity
IV. Return on assets × Total asset turnover
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41.
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The Du Pont identity can be used to help managers answer which of the following questions related to a firm's operations?
I. How many sales dollars has the firm generated per each dollar of assets?
II. How many dollars of assets has a firm acquired per each dollar in shareholders' equity?
III. How much net profit is a firm generating per dollar of sales?
IV. Does the firm have the ability to meet its debt obligations in a timely manner?
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42.
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A firm currently has $600 in debt for every $1,000 in equity. Assume the firm uses some of its cash to decrease its debt while maintaining its current equity and net income. Which one of the following will decrease as a result of this action?
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43.
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Which one of the following statements is correct?
A.
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Book values should always be given precedence over market values.
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B.
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Financial statements are frequently used as the basis for performance evaluations.
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C.
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Historical information provides no value to someone who is predicting future performance.
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D.
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Potential lenders place little value on financial statement information.
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E.
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Reviewing financial information over time has very limited value.
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44.
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It is easier to evaluate a firm using financial statements when the firm:
B.
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has recently merged with its largest competitor.
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C.
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uses the same accounting procedures as other firms in the industry.
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D.
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has a different fiscal year than other firms in the industry.
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E.
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tends to have many one-time events such as asset sales and property acquisitions.
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45.
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The most acceptable method of evaluating the financial statements of a firm is to compare the firm's current:
A.
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financial ratios to the firm's historical ratios.
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B.
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financial statements to the financial statements of similar firms operating in other countries.
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C.
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financial ratios to the average ratios of all firms located within the same geographic area.
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D.
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financial statements to those of larger firms in unrelated industries.
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E.
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financial statements to the projections that were created based on Tobin's Q.
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46.
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Which of the following represent problems encountered when comparing the financial statements of two separate entities?
I. Either one, or both, of the firms may be conglomerates and thus have unrelated lines of business.
II. The operations of the two firms may vary geographically.
III. The firms may use differing accounting methods.
IV. The two firms may be seasonal in nature and have different fiscal year ends.
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47.
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Wise's Corner Grocer had the following current account values. What effect did the change in net working capital have on the firm's cash flows for 2012?
A.
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net use of cash of $37
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B.
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net use of cash of $83
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C.
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net source of cash of $83
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D.
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net source of cash of $132
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E.
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net source of cash of $135
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48.
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During the year, Kitchen Supply increased its accounts receivable by $130, decreased its inventory by $75, and decreased its accounts payable by $40. How did these three accounts affect the firm's cash flows for the year?
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49.
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A firm generated net income of $862. The depreciation expense was $47 and dividends were paid in the amount of $25. Accounts payables decreased by $13, accounts receivables increased by $28, inventory decreased by $14, and net fixed assets decreased by $8. There was no interest expense. What was the net cash flow from operating activity?
Net cash from operating activities = $862 + $47 - $13 - $28 + $14 = $882
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50.
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A firm has sales of $2,190, net income of $174, net fixed assets of $1,600, and current assets of $720. The firm has $310 in inventory. What is the common-size statement value of inventory?
Common-size inventory = $310/($1,600 + $720) = 13.36 percent
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51.
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A firm has sales of $3,200, net income of $390, total assets of $4,500, and total equity of $2,750. Interest expense is $50. What is the common-size statement value of the interest expense?
Common-size interest = $50/$3,200 = 1.56 percent
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52.
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Last year, which is used as the base year, a firm had cash of $52, accounts receivable of $218, inventory of $509, and net fixed assets of $1,107. This year, the firm has cash of $61, accounts receivable of $198, inventory of $527, and net fixed assets of $1,216. What is the common-base year value of accounts receivable?
Common-base year accounts receivable = $198/$218 = 0.91
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53.
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Russell's Deli has cash of $136, accounts receivable of $95, accounts payable of $210, and inventory of $409. What is the value of the quick ratio?
Quick ratio = ($136 + $95)/$210 = 1.10
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54.
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Uptown Men's Wear has accounts payable of $2,214, inventory of $7,950, cash of $1,263, fixed assets of $8,400, accounts receivable of $3,907, and long-term debt of $4,200. What is the value of the net working capital to total assets ratio?
Net working capital to total assets = ($1,263 + $3,907 + $7,950 - $2,214)/($1,263 + $3,907 + $7,950 + $8,400) = 0.51
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55.
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A firm has total assets of $310,100 and net fixed assets of $168,500. The average daily operating costs are $2,980. What is the value of the interval measure?
Interval measure = ($310,100 - $168,500)/$2,980 = 47.52 days
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56.
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A firm has a debt-equity ratio of 0.42. What is the total debt ratio?
The debt-equity ratio is 0.42. If total debt is $42 and total equity is $100, then total assets are $142. Total debt ratio = $42/$142 = 0.30.
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57.
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A firm has total debt of $4,850 and a debt-equity ratio of 0.57. What is the value of the total assets?
Total equity = $4,850/0.57 = $8,508.77
Total assets = $4,850 + $8,508.77 = $13,358.77
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58.
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A firm has sales of $68,400, costs of $42,900, interest paid of $2,100, and depreciation of $6,500. The tax rate is 34 percent. What is the value of the cash coverage ratio?
Cash coverage ratio = ($68,400 - $42,900)/$2,100 = 12.14
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59.
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The Bike Shop paid $1,990 in interest and $1,850 in dividends last year. The times interest earned ratio is 2.2 and the depreciation expense is $520. What is the value of the cash coverage ratio?
EBIT = 2.2 × $1,990 = $4,378; Cash coverage ratio = ($4,378 + $520)/$1,990 = 2.46
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60.
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Al's Sport Store has sales of $897,400, costs of goods sold of $628,300, inventory of $208,400, and accounts receivable of $74,100. How many days, on average, does it take the firm to sell its inventory assuming that all sales are on credit?
Inventory turnover = $628,300/$208,400 = 3.014875
Days in inventory = 365/3.014875 = 121.07 days
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61.
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The Flower Shoppe has accounts receivable of $3,506, inventory of $4,407, sales of $218,640, and cost of goods sold of $169,290. How many days does it take the firm to sell its inventory and collect the payment on the sale assuming that all sales are on credit?
Days in inventory = 365/($169,290/$4,407) = 9.502 days
Days' sales in receivables = 365/($218,640/$3,506) = 5.853 days
Total days in inventory and receivables = 9.502 + 5.853 = 15.35 days
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62.
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A firm has net working capital of $2,715, net fixed assets of $22,407, sales of $31,350, and current liabilities of $3,908. How many dollars worth of sales are generated from every $1 in total assets?
Total asset turnover = $31,350/($2,715 + $22,407 + $3,908) = 1.08
Every $1 in total assets generates $1.08 in sales.
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63.
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The Purple Martin has annual sales of $687,400, total debt of $210,000, total equity of $365,000, and a profit margin of 4.80 percent. What is the return on assets?
Return on assets = (.048 × $687,400)/($210,000 + $365,000) = 5.74 percent
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64.
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Reliable Cars has sales of $807,200, total assets of $1,105,100, and a profit margin of 9.68 percent. The firm has a total debt ratio of 78 percent. What is the return on equity?
Return on equity = (.0968 × $807,200)/[$1,105,100 × (1 - .78)] = 32.14 percent
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65.
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The Meat Market has $747,000 in sales. The profit margin is 4.1 percent and the firm has 7,500 shares of stock outstanding. The market price per share is $22. What is the price-earnings ratio?
Earnings per share = (.041 × $747,000)/7,500 = 4.0836
Price-earnings ratio = $22/4.0836 = 5.39
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66.
|
Big Guy Subs has net income of $150,980, a price-earnings ratio of 12.8, and earnings per share of $0.87. How many shares of stock are outstanding?
Number of shares = $150,980/$0.87 = 173,540
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67.
|
A firm has 160,000 shares of stock outstanding, sales of $1.94 million, net income of $126,400, a price-earnings ratio of 18.7, and a book value per share of $7.92. What is the market-to-book ratio?
Earnings per share = $126,400/160,000 = $0.79
Price per share = $0.79 × 18.7 = $14.773
Market-to-book ratio = $14.773/$7.92 = 1.87
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68.
|
Oscar's Dog House has a profit margin of 5.6 percent, a return on assets of 12.5 percent, and an equity multiplier of 1.49. What is the return on equity?
Return on equity = 12.5 percent × 1.49 = 18.63 percent, using the Du Pont Identity
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69.
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Taylor's Men's Wear has a debt-equity ratio of 42 percent, sales of $749,000, net income of $41,300, and total debt of $206,300. What is the return on equity?
Return on equity = $41,300/($206,300/0.42) = 8.41 percent
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70.
|
A firm has a debt-equity ratio of 57 percent, a total asset turnover of 1.12, and a profit margin of 4.9 percent. The total equity is $511,640. What is the amount of the net income?
Return on equity = .049 × 1.12 × (1 + 0.57) = .0861616
Net income = $511,640 × .0861616 = $44,084
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71.
|
What is the quick ratio for 2012?
Quick ratio for 2012 = ($259,900 - $186,700)/$134,700 = 0.54
|
72-78
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72. How many days of sales are in receivables? (Use 2012 values)
Accounts receivable turnover for 2012 = $614,100/$56,700 = 10.8307
Days' sales in receivables for 2012 = 365/10.8307 = 33.7
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73. What is the price-sales ratio for 2012 if the market price is $18.49 per share?
Price-sales ratio = $18.49/[$614,1000/($140,000/$1)] = 4.22
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74. What is debt-equity ratio? (Use 2012 values)
Debt-equity ratio = ($134,700 + $135,500)/($140,000 + $131,800) = 0.99
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75. What is the cash coverage ratio for 2012?
Cash coverage ratio = ($81,500 + $11,200)/$10,100 = 9.18
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76. What is the return on equity? (Use 2012 values)
Return on equity = $42,500/($140,000 + $131,800) = 15.64 percent
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77. What is the amount of the dividends paid for 2012?
Dividends paid = $42,500 - ($131,800 - $120,700) = $31,400
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78. What is the amount of the cash flow from investment activity for 2012?
Cash flow from investment activity = $282,100 - $261,300 + $11,200 = $32,000
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79-86
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79. What is the net working capital to total assets ratio for 2012?
Net working capital to total assets for 2012 = ($27,129 - $8,384)/$41,209 = 45.49 percent
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80. How many days on average does it take Precision Tool to sell its inventory? (Use 2012 values)
Days' sales in inventory = 365/($28,225/$21,908) = 283.31 days
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81. How many dollars of sales are being generated from every dollar of net fixed assets? (Use 2012 values.)
Fixed asset turnover for 2012 = $36,408/$14,080 = 2.59
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82. What is the equity multiplier for 2012?
Equity multiplier for 2012 = $41,209/($17,500 + $3,825) = 1.93
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83. What is the times interest earned ratio for 2012?
Times interest earned for 2012 = $6,423/$510 = 12.59
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84. What is the return on equity for 2012?
Return on equity for 2012 = $3,843/($17,500 + $3,825) = 18.02 percent
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85. What is the net cash flow from investment activity for 2012?
Addition to net fixed assets = $14,080 - $14,160 + $1,760 = $1,680
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86. How does accounts receivable affect the statement of cash flows for 2012?
E.
|
a use of $807 of cash as an operating activity
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Change in accounts receivable for 2012 = $4,218 - $3,411 = $807
An increase in accounts receivable is a use of cash as an operating activity.
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87.
|
BL Lumber has earnings per share of $1.21. The firm's earnings have been increasing at an average rate of 3.1 percent annually and are expected to continue doing so. The firm has 21,500 shares of stock outstanding at a price per share of $15.60. What is the firm's PEG ratio?
PEG ratio = ($15.60/$1.21)/(.031 × 100) = 4.16
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88.
|
Townsend Enterprises has a PEG ratio of 5.3, net income of $49,200, a price-earnings ratio of 17.6, and a profit margin of 7.1 percent. What is the earnings growth rate?
5.3 = 17.6/(Earnings growth rate × 100); Earnings growth rate = 3.32 percent
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89.
|
A firm has total assets with a current book value of $68,700, a current market value of $74,300, and a current replacement cost of $79,200. What is the value of Tobin's Q?
Tobin's Q = $74,300/$79,200 = .94
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90.
|
Dixie Supply has total assets with a current book value of $368,900 and a current replacement cost of $486,200. The market value of these assets is $464,800. What is the value of Tobin's Q?
Tobin's Q = $464,800/$486,200 = .96
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91.
|
Dandelion Fields has a Tobin's Q of .96. The replacement cost of the firm's assets is $225,000 and the market value of the firm's debt is $101,000. The firm has 20,000 shares of stock outstanding and a book value per share of $2.09. What is the market to book ratio?
Market value of assets = .96 × $225,000 = $216,000
Market value of equity = $216,000 - $101,000 = $115,000
Market value per share $115,000/20,000 = $5.75
Market-to-book ratio = $5.75/$2.09 = 2.75 times
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92.
|
A firm has annual sales of $320,000, a price-earnings ratio of 24, and a profit margin of 4.2 percent. There are 14,000 shares of stock outstanding. What is the price-sales ratio?
Earnings per share = ($320,000 × .042)/14,000 = $0.96
Price-sales ratio = (24 × $0.96)/($320,000/14,000) = 1.01
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93.
|
Lassiter Industries has annual sales of $220,000 with 10,000 shares of stock outstanding. The firm has a profit margin of 6 percent and a price-sales ratio of 1.20. What is the firm's price-earnings ratio?
Price per share = 1.20 × ($220,000/10,000) = $26.40
Earnings per share = ($220,000 × .06)/10,000 = $1.32
Price-earnings ratio = $26.40/$1.32 = 20
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94.
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The Burger Hut has sales of $29 million, total assets of $43 million, and total debt of $13 million. The profit margin is 11 percent. What is the return on equity?
Return on equity = (.11 × $29m)/($43m - $13m) = 10.63 percent
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95.
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The Home Supply Co. has a current accounts receivable balance of $280,000. Credit sales for the year just ended were $1,830,000. How many days on average did it take for credit customers to pay off their accounts during this past year?
Receivables turnover = $1,830,000/$280,000 = 6.536 times
Days' sales in receivables = 365/6.536 = 55.85 days
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96.
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BL Industries has ending inventory of $300,000, and cost of goods sold for the year just ended was $1,410,000. On average, how long does a unit of inventory sit on the shelf before it is sold?
Inventory turnover = $1,410,000/$300,000 = 4.7 times
Day's sales in inventory = 365/4.7 = 77.66 days
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97.
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Coulter Supply has a total debt ratio of 0.52. What is the equity multiplier?
Debt-equity ratio = .52/(1 - 0.52) = 1.083
Equity multiplier = 1 + 1.083 = 2.083
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98.
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High Mountain Foods has an equity multiplier of 1.55, a total asset turnover of 1.3, and a profit margin of 7.5 percent. What is the return on equity?
Return on equity = .075 × 1.3 × 1.55 = 15.11 percent
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99.
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Lancaster Toys has a profit margin of 7.5 percent, a total asset turnover of 1.71, and a return on equity of 21.01 percent. What is the debt-equity ratio?
Equity multiplier = .2101/(.075 × 1.71) = 1.638
Debt-equity ratio = 1.638 - 1 = 0.638
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100.
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Charlie's Chicken has a debt-equity ratio of 2.05. Return on assets is 9.2 percent, and total equity is $560,000. What is the net income?
Equity multiplier = 1 + 2.05 = 3.05
Return on equity = .092 × 3.05 = .2806
Net income = .2806 × $560,000 = $157,136
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101.
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Canine Supply has sales of $2,200, total assets of $1,400, and a debt-equity ratio of 0.5. Its return on equity is 15 percent. What is the net income?
Return on equity = .15 = (Net income/$2,200) × ($2,200/$1,400) × (1 + 0.50)
Net income = $140.00
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102.
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Billings, Inc. has net income of $161,000, a profit margin of 7.6 percent, and an accounts receivable balance of $127,100. Assume that 66 percent of sales are on credit. What is the days' sales in receivables?
Sales = $161,000/.076 = $2,118,421
Credit sales = $2,118,421 × .66 = $1,398,158
Accounts receivable turnover = $1,398,158/$127,100 = 11 times
Days' sales in receivables = 365/11 = 33.18 days
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103.
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Gladstone Pavers has a long-term debt ratio of 0.6 and a current ratio of 1.6. Current liabilities are $700, sales are $4,440, the profit margin is 9.5 percent, and the return on equity is 19.5 percent. How much does the firm have in net fixed assets?
Current assets = 1.6 × $700 = $1,120
Net income = .095 × $4,440 = $421.80
Total equity = $421.80/.195 = $2,163.0769
0.6 = Long term debt/(Long-term debt + $2,163.0769); Long-term debt = $3,244.6153
Total debt = $700 + $3,244.6153 = $3,944.6153
Total assets = $3,944.6153 + $2,163.0769 = $6,107.6922
Net fixed assets = $6,107.6922 - $1,120 = $4,987.69
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104.
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A firm has a debt-total asset ratio of 74 percent and a return on total assets of 13 percent. What is the return on equity?
(Total assets - Total equity)/Total assets = .74; Total equity = .26 Total assets
Net income = .13 Total assets
Return on equity = .13 Total assets/.26 Total assets = 50 percent
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105.
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The Dockside Inn has net income for the most recent year of $8,450. The tax rate was 35 percent. The firm paid $1,300 in total interest expense and deducted $1,900 in depreciation expense. What was the cash coverage ratio for the year?
Earnings before taxes = $8,450/(1 - .35) = $13,000.00
Earnings before interest, taxes, and depreciation = $13,000.00 + $1,300 + $1,900 = $16,200.00
Cash coverage ratio = $16,200.00/$1,300 = 12.46 times
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106.
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Beach Wear has current liabilities of $350,000, a quick ratio of 1.65, inventory turnover of 3.2, and a current ratio of 2.9. What is the cost of goods sold?
Current assets = 2.9 × $350,000 = $1,015,000
($1,015,000 - Inventory)/$350,000 = 1.65; Inventory = $437,500
Costs of goods sold = 3.2 × $437,500 = $1,400,000
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