Markus Company’s common stock sold for $2.25 per share at the end of this year.
ID: 2482685 • Letter: M
Question
Markus Company’s common stock sold for $2.25 per share at the end of this year. The company paid a common stock dividend of $0.45 per share this year. It also provided the following data excerpts from this year’s financial statements:
What is the company’s operating cycle?
What is the total asset turnover?
What is the times interest earned ratio?
What is the debt-to-equity ratio at the end of this year?
Markus Company’s common stock sold for $2.25 per share at the end of this year. The company paid a common stock dividend of $0.45 per share this year. It also provided the following data excerpts from this year’s financial statements:
Explanation / Answer
11. Operating Cycle = (365 / Purchases) * Average Inventories + (365/Credit Sales) * Average Accounts Receivables
In this case Purchases = Ending Inventory - Beginning Inventory + Cost of Goods Sold = 48,100 - 50,000 + 319,000 = 317,100
Average Inventories = (Beginning inventory + Ending Inventory) / 2 = (50,000+48,100) / 2 = 98,100 / 2 = 49,050
Credit Sales = 550,000
Average Accounts Receivables = (Beginning AR + Ending AR) / 2 = (43,800 + 50,000)/2 = 93,800 / 2 = 46,900
Hence Operating Cycle = (365 / 317,100) * 49,050 + (365 / 550,000) * 46,900 = 87.58 days
12. Total Assets Turnover = Net Sales / Average Total Assets.
Net sales = 550,000 ; Average Total Assets = (Beggining Assets + Ending Assets) / 2 = (360,000 + 375,000) / 2 = 367,500
Hence = 550,000 / 367,500 = 1.50
13. Interest Earned Ratio = Income before interest and Taxes / Interest Expense
In this case Income before Interest and Taxes = 93,500 ; Interest Expense = 5,500
Hence = 93,500 / 5,500 = 17
14. Debt to Equity Ratio = Total Liabilities / Total Shareholders Equity
Here Total Liablities = 100,000 ; Total Shareholders Equity = 275,000
Hence = 100,000 / 275,000 = 0.36
15. Equity Multiplier = Total Assets / Total Stock holders Equity
Here Total Assets = 375,000; Total Equity = 275,000
Hence = 375,000 / 275,000 = 1.36