Prob - 13-4

1
Sunrise Corp.
(in millions)
2015 2014 2013 2012 2011
1. Sales 266.2 242 220 200 192.5
2. Net Inc 7.986 7.26 6.6 6 5.8
3. Dividend 3.993 3.63 3.3 2.5 2.5
December 31 remaining balance:
4. Owner's 80.923 76.93 73.3 70 66.5
5. Debt 52.177 44.07 36.7 30 29.8
Selected year-end financial ratios Net income 3% 3% 3% 3% 3%
Asset turn 2 2 2 2 2
6. Return o 9.87% 9.44% 9.00% 8.60% 8.70%
7. Debt to 39.20% 36.42% 33.36% 30% 30.90%
Total Asset 133.1 121 110 100 96.44013

2
Yes, CEO can achieve her goals of increasing dividends paid and increasing return on owner's equity but in year 201
debt is exceeding her limit of 35% of the total liabilty and shareholder's equity value.

3
The increase in dividend payments furthur will reduce the Owner's equity amount to some extend and it will also
the return on owner's equity. The alternatives ways for increasing the net income should be considered like red
changing the COGS calculating methods, etc.

4
Higher debt more than 35%, may decrease the liquidity of the company and it also creates a bad financial situati
investors. This may inturn have an negative impact on the company's stocks.
 2010
187
5.6
2.5

63.2
30.3
3%
2
8.90%
32.40%
93.51852

ner's equity but in year 2015, the

s equity value.

me extend and it will also help in boosting

ould be considered like reduction in cost,

eates a bad financial situation about the company among the

t on the company's stocks.
Problem - 13-7

a) Times interest earnerd = (Net Income+Interest Expense+Income tax expense) / Interest Expense

= (72000+20000+48000)/20000
=7

b. Return on Total Assets = (Net Income + Interest Expense, Net of Tax) / Average Total Assets

= (72000+(20000*(1-0.4)))/((116000+114000)/2)
= 0.7304

* Tax rate = 48000/120000 = 0.4 = 40%

c. Return on common stockholder's equity = (Net Income - Preferred Dividends) / Average Common stockholder's e

= (72000-34000)/((260000+217000)/2)
= 0.159329

* Dividend = RE Beginning Balance + Net Income - Ending Balance = 114000+72000-152000 = 34000

d. Debt to Equity Ratio = Total Liability / Total Stock holder's equity

= 280000/260000
= 1.0769

e. Current Ratio = Current Asset / Current Liabilities

= 144000/120000
= 1.2

f. Quick Ratio = (Cash + Marketable Securities + Current Receivables)/ Current Liabilities

= (26000+48000)/120000
= 0.61667

g. AR turnover Ratio = Net Credit Sales / Average Accounts Receivable

= 800000/((48000+50000)/2)
= 16.32653
 h. No. of days' sales in receivables = No. of days in the period / AR turnover ratio

= 365/16.32653
= 22.3563

i. Inventory turnover ratio = Cost of goods sold / Average Inventory

= 540000/((65000+62000)/2)
= 8.5039

j. No. of days' sales in inventory = No. of days in the period / Inventory turnover ratio

= 365 / 8.5039
= 42.92148

k. No. of days in cash operating cycle = No. of days in inventory + No. of days in receivables

= 42.92148 + 22.3563
= 65.27778

2 i) Liquidity Analysis: Company's current ratio and quick ratio are low and it seems that there is very less liquidity in
inventory, or problem in sales departme

ii) Solvency Analysis: The debt to equity ratio of the company is 1.0769. The times interest earned of the organisa
only based on the indu
iii) Profitability Analysis: Return on stockholder's equity is having a 15%, which is considerable good % of return for
erest Expense

rage Common stockholder's equity

52000 = 34000
t there is very less liquidity in the organisation. The no. of days taken to receive recievable is 23 days(approx.) which is low in number but
, or problem in sales department, or the prices may be very high or the market demand for the company's prduct is decreasing. The cash o

nterest earned of the organisation is 7 which means it has ample to pay its interest for the current year. The solvency or long term stability
only based on the industry nature, market scenario and competitors, etc.
iderable good % of return for stock holders.
.) which is low in number but whether the company does effective collection or not is dependent on the credit period given by the compa
rduct is decreasing. The cash operating cycle is of 65 days and this indicated the cash flow takes approximately 65 days to circulate. Howe

solvency or long term stability of the company can be accessed

dit period given by the company to its customers. The number of days's sales in inventory is 43 days , which indicates that inventory mana
ely 65 days to circulate. However, the company's performance can be exactly accessed only after reviewing its competitor's ratios and turn
indicates that inventory managment will be a challenge if this number furthur increases. It may also signal in obsolete
ts competitor's ratios and turnover details.