Unity University

Department of Accounting and Finance

Financial Management I
Worksheet – Chapter Two
Instructor : Melaku K.

1. Total current assets of the firm are Br 50,000, of which inventory represents 20%. If current
liabilities are Br 15,000, determine quick ratio.
2. Given, current ratio of 2:1 and total current assets of Br 10,000. Determine total currents
liabilities.
3. Given: Current ratio of 2.5:1 and total current liabilities of Br 12,000, determine total current
assets.
4. Given:
Cash ………………………………………………………………………………………………………………………….Br 60,000
Accounts/Receivable ……………………………………………………………………………………………….. 20,000
Inventory ………………………………………………………………………………………………………………… 40,000
Short-term prepayments …………………………………………………………………………………………. 15,000
Accounts/payable …………………………………………………………………………………………………….. 30,000
Accruals …………………………………………………………………………………………………………………… 15,000
Required: Determine the following:
a) Total current assets
b) Total current liabilities
c) Current ratio
d) Quick assets
5. If Ending A/R and ARTO are 20,000 and 8 times, respectively, determine the credit sales and
ACP, assuming a 360 days in a year
6. If sales and inventory turnover are Br 400,000 and 10 times respectively, determine ending
inventory and inventory period
7. If sales and TATO are Br 800,000 3 times respectively, determine the total assets.
8. If fixed assets and FATO are Br 200,000 and 4 times respectively, determine total sales.
9. Given: D/E ratio is 60%. Calculate, D/A, DM, EM and shareholders ratio
10. Total assets= 820,000, D/A = 55%, what is the total liabilities? Determine the stockholders
equity.
11. If ROA and Equity Multiplier are 10% and 1.8 respectively, determine ROE
12. Assume P/E ratio is =2times, net income =$100,000 and # of common shares outstanding is
40,000 with a par value of $3. What is the market value of the each share?
13. A fire has destroyed many of the financial records of LG trading company. You assigned to
gather information to prepare financial reports. You have found that the firm's return on
equity (ROE) is 10%, D/Ratio 60%, and its net profit is $100,000. What is the balance of
total assets for the company?
14. A firm has sales of $500, total assets of $300, and a debt/ Equity ratio of 2 times. If its ROE
is 15%, what is its Net income?
15. Given, NI= 60,000, sales = 500,000, sales return and allowance= 20,000, Sales discount=
30,000. Determine the NPM
16. If ROA and D/A are 0.15 and 0.4 respectively, determine ROE
17. Given:

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Net Sales …………………………………………………………………………….Br 800,000
CGS ………………………………………………………………………………… 300,000
Operating Expense………………………………………………………………….. 200,000
Income tax rate ……………………………………………………………………… 40%
Total assets ………………………………………………………………………… 500,000
Common stock (Br 100 par) ………………………………………………………. 100,000
Preferred stock …………………………………………………………………….. 60,000
Retained Earnings …………………………………………………………………. 90,000
Required: Compute the following
a) Net income
b) NPM
c) ROA
d) ROE
e) EPS (assume preferred dividends of 10% of their investment annually)
18. Assume the following summarized ratios and data are taken from the records of Blue
Company, at the end of December 31, 2006.
Profit margin (net) ………………………………………………………………. 5%
Net Fixed assets…………………………………………………………………Br 1,440,000
Net sales ………………………………………………………………………… 3,600,000
Inventory………………………………………………………………………… 400,000
No. of common shares outstanding at the end of year 2006………………….. 100,000
Price to Earnings ratio ………………………………………………………….. 20times
Debt ratio………………………………………………………………………… 40%

Required:
Compute the following selected ratios from the given data for the year ended December 31,
2006
a) Current and Quick ratios
b) Total assets turnover ratio
c) Return on Equity
d) Equity multiplier
e) Market value each share at the end of 2006
19. Assume that the MPS, EPS, and BVPS are Br 80, Br 100, and Br. 120 respectively,
determines P/E ratio and M/B ratio.
20. The following data is compiled for ABC Company for the years ended on December 31,
2015, 2016, and 2017:

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 2015 2016 2017
a. Balance sheet
Assets:
Cash 15,000 20,000 28,000
As/R 20,000 22,000 30,000
Inventories 40,000 60,000 65,000
Fixed Assets (net) 50,000 58,000 62,000
Total assets 125,000 160,000 185,000
Liabilities and Equity:
Current Liabilities 10,000 12,000 15,000
Long-Term Debts 15,000 20,000 20,000
Total Liabilities 25,000 32,000 35,000
Equity 100,000 128,000 150,000
Total Liabilities & Equity 125,000 160,000 185,000
b. Income Statement
Sales 100,000 150,000 200,000
Less: Cost of Goods Sold 60,000 90,000 120,000
Gross Profit 40,000 60,000 80,000
Less: Selling and Adm. Exp. 25,000 32,000 35,000
Operating Income 15,000 28,000 45,000
Less: Interest Expense 5,000 5,000 6,000
Income Before Taxes 10,000 23,000 39,000
Less: Income Taxes (40%) 4,000 9,200 15,600
Net Income 6,000 13,800 23,400
Required: Using the above data, conduct Common Size Statement and Index Analysis
21. The financial statements for Moon Company are given below:
A. Balance sheet
Moon Company
Balance sheet
December 31, year1
Assets
Current assets:
Cash…………………………………………………………………………………Br 6,500
Accounts receivables ……………………………………………………………….. 5,000
Merchandise Inventory …………………………………………………....………… 70,000
Prepaid Expenses ……………………………………………………………… ……. 3,500
Total Current assets ………………………………………………………………….. 115,000
Property and plant (net) ……………………………………………………………… 185,000
Total assets ………………………………………………………....................... ….. 300,000

Liabilities and stockholders’ equity:

Liabilities:
Current liabilities ………………………………………………………………. Br 50,000
Bonds payable, 10% ……………………………………………..…………….. 80,000
Total Liabilities ………………………………………………… ………….. 130,000
Stockholders’ equity
Common stock, Br 5 par value ………………………………………………. Br 30,000

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 Retained earnings …………………………………………………………… 140,000
Total Stockholders’ equity …………………………………………………. 170,000
Total liabilities and equity …………………………………………………. 300,000

B. Income statement
Moon Company
Income statement
For the year ended December 31, year1
Sales ………………………………………………………………………. Br 420,000
Less: Costs of goods sold ………………………………………………….. 292,500
Gross profit …………………………………………………………………. 127,500
Less: Operating Expense …………………………………………………… 89,500
Net operating income ………………………………………………………. 38,000
Interest Expense …………………………………………………………….. 8,000
Net income before taxes …………………………………………………….. 30,000
Less: income taxes (30%)…………………………………………………….. 9,000
Net income …………………………………………………..……………….. 21,000
Accounts balances at the beginning of the ear were: accounts receivables, Br 25,000 and
inventory, Br 60,000. All sales were on account.

Required: Compute the following financial ratios

a) Gross profit ratio (GPM)
b) Current ratio ( industry average : 2.5 to 1)
c) Acid test ratio ( industry average : 1.3 to 1
d) Debt to equity ratio
e) Account receivable turnover in days
f) Inventory turnover in days
g) Times interest earned
h) Book value per share
22. Refer to the financial statement for Moon Company and assume that Moon paid dividends of
Br 2.10 per share during the year. Assume also that the Company’s commons tock had a
market price of Br 42 at the end of the year and there was no change in the number of
outstanding shares of common stock during the year.
Required: Compute the following financial ratios
a) Earnings per share
b) Dividend payout ratio
c) Dividend yield ratio
d) Price earnings ratio
23. Refer to the financial statements of Moon Company and assume further that assets at the
beginning of the year totaled Br 280,000 and the stockholders equity totaled Br 161,600.
Required: Compute the following ratios
a) Return on assets
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 b) Return on common stockholders’ equity
c) Was the financial leverage positive or negative for the year? Explain

24. Calculate the following independent financial ratios and interpret the result
Given D/E is 0.60. Determine D/A
Total assets is Br 82,000, debt ratio, 55% , what is the total liabilities ? determine
stockholders equity
If D/A ratio is 0.30 , determine D/E
If the total liabilities and total asset are Br 200,000 and Br 50,000 , determine D/A
ratio
If the total debts and equity are Br 60,000 and Br 80,000 respectively. Determine debt
to equity ratio
If the EBIT and interest expense are Br 80,000 and Br 10,000 respectively ,
Determine TIE ratio
The EBIT of the firm is Br 60,000. Interest expense and lease payments are Br 5000
and Br 15,000 respectively. Determine FCC ratio.
Given interest expense Br 30,000 ; TIE ratio , 10 times , Determine the EBIT
Given D/E ratio of 0.80, what is the equity multiplier? What is the debt ratio?
Given EM to be 1.50. Determine D/A and D/E
If ROA and EM are 10% and 1.8 respectively, determine ROE.
Given net income to be 60,000 sale Br 500,000, sales return and allowances , 20,000 ,
sales discount , 30,000. The company has 5,000 shares of Br 2 preferred stock .
Determine NPM
If ROA and D /A are 0.15 and 0.40 respectively. Determine ROE
If NPM, TATO, and EM are 0.10 , 1.2 and 1.5. Determine ROE
If P/E ratio and EPS are 6 and Br 30 respectively, Determine the market price per
share
If M/B ratio and market price per share are 1.5 and Br 80 respectively , determine
book value per share

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