LUCY COLLEGE

DEPARTMENT OF ACCOUNTING AND FINANCE

FINANCIAL MANAGEMENT I
GROUP ASSIGNMENT I ON CHAPTER 2 FINANCIAL STATEMENT ANALYSIS
ANSWER SHEET
Group Members:

S/ Name ID No Section
N
1
2
3
4
5
6
NB:
 More than 6 members are not allowed.
 Answers should be given on this answer sheet only.
 Do not use any other cover page.
PROBLEM 1 (10%)

I. Short – term solvency, or liquidity, ratios

a) Quick ratio = 0.85x

b) Current ratio =2.33x

c) Cash ratio= 0.12x

d) Net working capital= 901,000

II. Long – term solvency, or financial leverage, ratios

a) Total debt ratio =100%

b) Debt to equity ratio = 1.21

c) Long – term debt ratio = 0.22

d) Times interest earned ratio = 4.72x

e) Cash coverage ratio =8

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III. Asset utilization, or turnover, ratios
a) Inventory turnover =4

b) Days’ sales in inventory =91.25 days

c) Receivables turnover= 9.88

d) Days sales outstanding= 36.93

e) Fixed assets turnover = 2.59X

f) Total assets turnover= 2.36x

IV. Profitability ratios

a) Profit margin ratio = 2.5%

b) Return on assets =5.9%

c) Return on equity = 13.06%

V. Market value ratios

a) Price – earnings ratio = 4.98

b) Market – to – book ratio = 0.64

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PROBLEM 2 (5%)

PLEASE SOLVE THIS PROBLEM BY SHOWING CLEARLY ALL THE NECESSARY STEPS, FORMULAS AND COMPUTATIONS AT THE
BACK OF THIS PAGE AND INSERT THE CORRECT ANSWER ON BLANK (…) SPACES ON THE INCOME STATEMENT AND BALANCE
SHEET BELOW PROVIDED FAILING TO DO SO IS MARK DEDUCTIBLE.

INCOME STATEMENT
(figures in millions of ETB)
Net Sales ETB 225.56
Cost of goods sold 110
Selling, general, and administrative expenses 10
Depreciation 20
Earnings before interest and taxes (EBIT) ETB 365.56
Interest expense 45.69
Earnings before taxes ETB 411.25
Taxes 123.37
Net income ETB 287.88

BALANCE SHEET
(figures in millions of ETB)
Assets
Cash and marketable securities ETB 11
Receivables 44
Inventories 22
Total current assets ETB 77
Net property, plant, and equipment 1522.33
Total assets ETB 1,599.33
Liabilities and Shareholders’ Equity
Accounts payable ETB 25
Notes payable 30
Total current liabilities ETB 55
Long – term debt 639.73
Shareholders’ equity 702.14
Total liabilities and shareholders’ equity ETB 115