Q1. The following data apply to A.L.

Kaiser & Company (millions of
dollars): Cash and marketable securities $100.00 Fixed assets 283.50 Sales $1,000.00 Net income $50.00 Quick ratio 2.0x Current ratio 3.0x DSOa 40.55 days ROE 12% a Calculation is based on a 365-day year. Kaiser has no preferred stock—only common equity, current liabilities, and long-term debt. a. Find Kaiser’s (1) accounts receivable (A/R), (2) current liabilities, (3) current assets, (4) total assets, (5) ROA, (6) common equity, and (7) long-term debt. b. In part a, you should have found Kaiser’s accounts receivable (A/R) = $111.1 million. If Kaiser could reduce its DSO from 40.55 days to 30.4 days while holding other things constant, how much cash would it generate? If this cash were used to buy back common stock (at book value), thus reducing the amount of common equity, how would this affect (1) the ROE, (2) the ROA, and (3) the total debt/total assets ratio?

Q2.

The Petry Company has $1,312,500 in current assets and

$525,000 in current liabilities. Its initial inventory level is $375,000, and it will raise funds as additional notes payable and use them to increase inventory. How much can Petry’s short-term debt (notes payable) increase without pushing its current ratio below 2.0? What

4.Cost of goods sold)/Sales = 25% Inventory turnover ratio: 5x a Calculation is based on a 365-day year. BALANCE SHEET Cash ________________ A/R ____________ Inventories __________________ Fixed assets __________________ Total assets $300. What were Kretovich’s annual sales and its DSO for that year? Assume there are 365 days in a year. a current ratio of 3. The H.will be the firm’s quick ratio after Petry has raised the maximum amount of short-term funds? Q3. total current assets of $810.000 Sales __________________ Accounts payable Long-term debt Common stock Retained earnings Total liab.000 of debt outstanding.000 __________ 97. Complete the balance sheet and sales information in the table that follows for Hoffmeister Industries using the following financial data: Debt ratio: 50% Quick ratio: 0. and it pays an interest rate of 10 percent annually.000 in 2001.5 days a Gross profit margin on sales: (Sales .R. and its net profit margin on sales is 5 percent.80x Total assets turnover: 1.500 __________ __________ . and bankruptcy will result. What is Pickett’s TIE ratio? Q5. & equity Cost of goods sold _________ 60. Pickett’s annual sales are $2 million.000.0.5x Days sales outstanding: 36. its bank will refuse to renew the loan. an inventory turnover of 6 times. Q4. and cash and marketable securities of $120. The Kretovich Company had a quick ratio of 1. Pickett Corporation has $500. If the company does not maintain a TIE ratio of at least 5 times. its average tax rate is 30 percent.

and common equity during 2001. No calculations are needed.000 Total assets $ 947. light.000 Labor 453.500 Other current liab. Calculate the indicated ratios for Barry. d. Outline Barry’s strengths and weaknesses as revealed by your analysis.000 Selling expenses 115.000 Net fixed assets 292.000 Depreciation 41.500 Cost of goods sold: Materials $717. 2001 (In 000’s) Cash $ 77.000 Tot. Construct the extended Du Pont equation for both Barry and the industry.500 Accounts payable $ 129.000 Tot C liabilities $ 330. a. C Assets $ 655.000 Heat. b.500 .000 Interest expense 24.500 Barry Computer Company: P&L for Year End Dec31.607. 117.500 Common equity 361.500 COGS 1.500 Total liabilities and equity $ 947.000 Earnings before interest and taxes (EBIT) $ 70. accounts receivable. 2001 (In 000’s) Sales $1. and power 68.500 Long-term debt 256.000 General and administrative expenses 30.) Barry Computer Company: Balance Sheet as of Dec 31.Q6.000 Receivables 336.500 Gross profit $ 215. c. Data for Barry Computer Company and its industry averages follow.000 Notes payable 84.000 Indirect labor 113. Suppose Barry had doubled its sales as well as its inventories.392. How would that information affect the validity of your ratio analysis? (Hint: Think about averages and the effects of rapid growth on ratios if averages are not used.000 Inventories 241.

7x 3.500 18. 2.200 $ 27.0x 1.0% .0x 35 days 6.0% 60.2% 3.Earnings before taxes (EBT) Federal and state income taxes (40%) Net income RATIO BARRY $ 45.300 INDUSTRY AVG Current assets/current liabilities Days sales outstanding a Sales/inventories Sales/total assets Net income/sales Net income/total assets Net income/common equity Total debt/total assets a __________________ __________________ __________________ __________________ __________________ __________________ __________________ __________________ Calculation is based on a 365-day year.6% 9.

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