1.

Premier Company's net profit margin is 8 percent, total assets turnover ratio is
2.5 times, debt to total assets ratio is 0.6. What is the return on equity for
Premier?
Solution:
Net profit
Return on equity =
Equity
= Net profitNet sales x Total assets
x
Net sales Total assets Equity
1
=0.08x2.5x= 0.5 or 50 per cent
0.4
DebtEquity
Note := 0.6So= 1- 0.6 = 0.4
Total assetsTotal assets

Hence Total assets/Equity= 1/0.4

2. The following information is given for Alpha Corporation
Sales 3500
Current ratio 1.5
Acid test ratio 1.2
Current liabilities 1000
What is the inventory turnover ratio?
Solution:
Current assets =Current liabilities x 1.5
=1000 x 1.5 = 1500
Quick assets = Current liabilities x 1.2
=1000 x 1.2 = 1200
Inventories =300
3500
Inventory turnover ratio = = 11.7
300
3. The following information is given for Beta Corporation.
Sales 5000
Current ratio 1.4
Inventory turnover 5
ratio
Acid test ratio 1.0
What is the level of current liabilities?
 Solution:

Inventory
=CCC
0.4-1 1==
4. 5000/5
LCLL0 =. =Inc. has profit before tax of Rs.90 million. If the company's times interest
ASafari
1000 covered
10 01 ratio is 4, what is the total interest charge?
2500
0
CL0 .
1
Current
Solution:
.0 0
assets
40
Current
- PBT=Rs.90 million
ratio == PBIT
=
1.4 Times interest covered = = 4
C
Current Interest
L
liabilities
1
So PBIT = 4 x Interest PBT = PBIT – interest
0
Current = 4x interest- interest = 3 x interest = 90 million
0
assets0 –
Inventori Therefore interest = 90/3 = Rs.30 million
es
Acid test
5. ratioA has = =profit before tax of Rs.40 million. If its times interest covered ratio is 6, what is
1.0the total interest charge?
Current
Liabilities
C.A -
1000
= 1.0
CL
Solution:

PBT = Rs. 40 million

PBIT
Times interest covered = = 6
Interest
So PBIT = 6 x Interest
PBIT – Interest = PBT = Rs.40 million

6 x Interest – Interest = Rs. 40 million

5 x Interest = Rs.40 million

Hence Interest = Rs.8 million