I. Based on the balance sheet and income statement below, calculate the ratios a
ID: 1171144 • Letter: I
Question
I. Based on the balance sheet and income statement below, calculate the ratios and measurements listed below.
MicroDrive Inc. December 31 Balance Sheets
(in millions of dollars)
2011
2010
Assets
Cash and equivalents
$0
$15
Short-term investments
$0
$65
Accounts receivable
$375
$315
Inventories
$615
$415
Total current assets
$990
$810
Net plant and equipment
$1,000
$870
Total assets
$1,990
$1,680
Liabilities and equity
Accounts payable
$60
$30
Notes payable
$110
$60
Accruals
$140
$130
Total current liabilities
$310
$220
Long-term bonds
$754
$580
Total debt
$1,064
$800
Preferred stock (400,000 shares)
$40
$40
Common stock (50,000,000 shares)
$130
$130
Retained earnings
$768
$710
Total common equity
$898
$840
Total liabilities and equity
$2,002
$1,680
MicroDrive Income Statements for Years Ending December 31
(in millions of dollars)
2011
2010
INCOME STATEMENT
Net sales
$3,000.0
$2,850.0
Operating costs except depreciation
$2,616.2
$2,497.0
Earnings before interest, taxes, deprn, and amortization (EBITDA)*
$383.8
$353.0
Depreciation
$100.0
$90.0
Earnings before interest and taxes (EBIT)
$283.8
$263.0
Less interest
$88.0
$60.0
Earnings before taxes (EBT)
$195.8
$203.0
Taxes @ 40%
$78.3
$81.2
Net Income
$117.5
$121.8
Preferred dividends
$4.0
$4.0
Net Income available to common stockholders
$113.5
$117.8
Common dividends
$57.5
$53.0
Addition to retained earnings
$56.0
$64.8
*MicroDrive has no amortization charges.
What is Current Ratio
What is the Return on Assets
What is the Profit Margin
MicroDrive Inc. December 31 Balance Sheets
(in millions of dollars)
2011
2010
Assets
Cash and equivalents
$0
$15
Short-term investments
$0
$65
Accounts receivable
$375
$315
Inventories
$615
$415
Total current assets
$990
$810
Net plant and equipment
$1,000
$870
Total assets
$1,990
$1,680
Liabilities and equity
Accounts payable
$60
$30
Notes payable
$110
$60
Accruals
$140
$130
Total current liabilities
$310
$220
Long-term bonds
$754
$580
Total debt
$1,064
$800
Preferred stock (400,000 shares)
$40
$40
Common stock (50,000,000 shares)
$130
$130
Retained earnings
$768
$710
Total common equity
$898
$840
Total liabilities and equity
$2,002
$1,680
Explanation / Answer
Current Ratio is an indicator of company's liquidity position.
Current ratio = Current Assets/Current liabilities
For 2011, Current Ratio = 990/310 = 3.19
For 2010, Current Ratio = 810/220 = 3.68
Return on Assets is a profitability indicator for a company.
By formula, ROA = Net Income/Total Assets
For 2011, ROA = 117.5/1990 = 5.90%
For 2010, ROA = 121.8/1680 = 7.25%
{In real world, formula for ROA used is net income/Average total assets. So for 2011, ROA by this formula = 117.5/((1990 + 1680)/2) = 6.40%}
Profit margin is an indicator of operating efficiency fo the company.
Profit margin = net Income/Sales
For 2011, Profit margin = 117.5/3000 = 3.92%
For 2010, Profit margin = 121.8/2850 = 4.27%