DC 13-4.

1.

Ratios of General Mills for year ending May 31,2009

a) Working capital = current assets – current liabilities

$3,534.9 million -$3,606.0 million = -($71.1 million)
b) Current Ratio = Current Assets / Current Liabilities
$3,534.9/$3,606 = 0.98
c) Acid-test ratio = (Current Assets – Inventory) / Current Liabilities
($3,534.9 – $1,346.8) / $3,606 = 0.6
d) Cash flow from operations to current liabilities = $1,828.2/$3,606 = 0.5
e) Debt to equity ratio = Total Liabilities / Shareholder's Equity
$12,458.3 / $5,172.3 = 2.4
f) Cash flow from operations to capital expenditures
Capital expenditure = net change in Property Plant and Equipment (PP&E) value over a given
period to the depreciation expense for the same year
($562.6-$522) + $453.6 = 493.6
1,828.2 / 493.6 = 3.7
g) Asset turnover = Net Sales/ Total Assets
$14,691.3 / $17,874.8 = 0.8
h) Return on sales = operating profit / net sales
$2,325.0 / $14,691.3 = 0.16
i) Return on assets = operating profit / Total assets
$2,325.0 /$ 17,874.8 = 0.13
j) Return on common stockholders’ equity = operating profit / stockholders’ equity
$2,325 / $5,172.3 = 0.45

Ratios of General Mills for year ending May 30,2010

a) Working capital = current assets – current liabilities

$3,480.0 million -$3,769.1 million = -($289.1 million)
b) Current Ratio = Current Assets / Current Liabilities
3,480/3,769.1 = 0.92
c) Acid-test ratio = Current Assets – Inventory / Current Liabilities
3,480 – 1,344 / 3,769.1 = 0.57
d) Cash flow from operations to current liabilities = 2181.2/3,769.1 = 0.58
e) Debt to equity ratio = Total Liabilities / Shareholder's Equity
12,030.9 / 5,402.9 = 2.2
f) Cash flow from operations to capital expenditures
Capital expenditure = net change in Property Plant and Equipment (PP&E) value over a given
period to the depreciation expense for the same year
(649.9-562.6) + 457.1 = 544.4
2,181.2 / 544.4 = 4
g) Asset turnover = Net Sales/ Total Assets
14,796.5 / 17,678.9 = 0.84
h) Return on sales = operating profit / net sales
2,606.1 / 14,796.5 = 0.18
i) Return on assets = operating profit / Total assets
 2,606.1 / 17,678.9 = 0.15
j) Return on common stockholders’ equity = operating profit / stockholders’ equity
2,606.1 / 5,402.9 = 0.48

2. Based on the calculated ration we can conclude that the financial health of the General Mills is
not so good as working capital is in negative & other profitability ratios are too low.

DC 13-7:

1.

Current ratio = current asset / current liabilities

16/10 = 1.6. As the current ratio is more than what Midwest construction company agreed with the
bank, of always maintaining a minimum level of 1.5 to 1.

Debt to equity ratio = Total Liabilities / Shareholder's Equity

25/55 = 0.45. As the Midwest construction company agreed that its debt-to-equity ratio will not
exceed 0.5 to 1.0, so it is still within limits what it had promised.

2.

As of now that 5 million USD is still needed to be paid in 6 months so they should have counted that
amount in current liabilities and not in long term liabilities. $2 million should be accounted as the
deferred expense.

3. Revised Balance sheet

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Current assets $ 14 Current liabilities $ 15

Deferred expense $ 2 Long-term debt $ 10

Long term assets $ 64 Stockholders equity $ 55

Total $ 100 Total $ 100

Current ratio = 14/15 = 0.93

Debt to equity ratio = 25/55 = 0.45

Now with the new ratios we can clearly see that Midwest construction company is not in compliance
of the loan agreement as their current ratio is 0.93.