Marea Danielle Godinez

FDNBUSM C43 – Module 4 Problem Set

The Gillian Corporation has the following Balance Sheet and Income
Statement. Compute the Profitability, Asset Utilization, Liquidity, and Debt
Utilization Ratios.
1. Profitability Ratios
a. Profit margin
i. Gross
𝐶𝑜𝑠𝑡 𝑜𝑓 𝐺𝑜𝑜𝑑 𝑆𝑜𝑙𝑑
= Total Sales - 𝑇𝑜𝑡𝑎𝑙 𝑅𝑒𝑣𝑒𝑛𝑢𝑒
210,000
=
2.4000.000

= 33%
ii. Net
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒
= 𝑺𝒂𝒍𝒆𝒔
210,000
=2,400,00

= 8.6%

• Return on assets
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒
= 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
210,000
= 1,100,000

= 11.25%
• Return on equity
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒
= 𝑇𝑜𝑡𝑎𝑙 𝐸𝑞𝑢𝑖𝑡𝑦
210,000
= 620,000

= 34%

2. Asset Utilization Ratios

 Marea Danielle Godinez
FDNBUSM C43 – Module 4 Problem Set

● Receivables turnover
𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠
= 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒
210,000
= 250,000

= 0.84
● Average collection period
𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒
=( ) x 365
𝐴𝑛𝑛𝑢𝑎𝑙 𝑅𝑒𝑣𝑒𝑛𝑢𝑒
250,000
= ( 2,400,000) x 365

= 38.02
● Inventory turnover
𝐶𝑜𝑠𝑡 𝑜𝑓 𝐺𝑜𝑜𝑑 𝑆𝑜𝑙𝑑
= 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦
1,600,000
= 200,000

=8
● Fixed asset turnover
𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠
= 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐹𝑖𝑥𝑒𝑑 𝐴𝑠𝑠𝑒𝑡𝑠
210,000
= 440,000
= 48
● Total asset turnover
𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠
= 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠

= 210,000
=19%
3. Liquidity Ratios
 Marea Danielle Godinez
FDNBUSM C43 – Module 4 Problem Set

● Current ratio
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠
= 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
580,000
= 280,000

=2
● Quick ratio
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠−𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦−𝑃𝑟𝑒𝑝𝑎𝑖𝑑 𝐸𝑥𝑝𝑒𝑛𝑠𝑒
= 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
560,000−200,000
= 280,000

= 1.29
4. Debt Utilization Ratios
● Debt to total assets
𝑇𝑜𝑡𝑎𝑙 𝐷𝑒𝑏𝑡
= 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
450,000
= 1,100,000

= 40%
● Times interest earned (note: income before interest and taxes
equals operating profit)
𝐸𝐵𝐼𝑇
= 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐸𝑥𝑝𝑒𝑛𝑠𝑒
210,000
=
30,000

=7