Use the following information to answer the following questions. ABC, Inc. Incom
ID: 2637420 • Letter: U
Question
Use the following information to answer the following questions.
ABC, Inc. Income Statement (in thousands)
December 31, 2014
Sales $200,000
Cost of goods sold 140,000
Gross profit on sales 60,000
Operating expenses 56,000
Operating income (EBIT) 4,000
Interest expense 1,000
Earnings before tax 3,000
Income tax 1,050
Net income available to common stockholders $1,950
Number of shares outstanding 1, 500
Market price per share $22
ABC, Inc. Balance Sheet (in thousands)
December 31, 2014
Assets
Cash $2,000
Accounts receivable 17,800
Inventories 8,700
Total current assets 28,500
Gross fixed assets 70,000
Accumulated depreciation 26,500
Net fixed assets 43,500
Total assets $72,000
Liabilities and Equity
Accounts payable $18,000
Accruals 13,350
Total current liabilities 31,350
Long-term debt 8,250
Total liabilities 39,600
Common stock (par value and paid in capital) 2,000
Retained earnings 30,400
Total stockholders' equity 32,400
Total liabilities and equity $72,000
Industry Key Ratios
Industry Average Ratios
Current ratio 1.1
Quick ratio 0.60
Days Sales Outstanding (DSO) 25 days
Fixed assets turnover 5.8
Total asset turnover 2.95
Liabilities-to-assets ratio 65%
Times-interest-earned 3.2
Net profit margin 1.3%
Return on equity 7.32%
Price/earnings ratio 20.38
Market/book ratio 3.19
Calculate current ratio and acid test ratio for the firm.
Calculate DSO, fixed assets turnover, and total asset turnover for the firm.
Calculate liabilities-to-assets ratio and times-interest-earned ratio for the firm.
Calculate net profit margin and return on equity for the firm.
Evaluate the performance of the firm in the following areas:
Liquidity management
Asset management
Debt management
Profitability management
When you explain the firm
Explanation / Answer
CURRENT RATIO = CA / CL
= 28500 / 31350
=.909 TIMES
B)ACID TEST RATIO = (ACID ASSETS OR QUICK ASSETS ) / CURRENT LIABILTIES
= (CA - INVENTORY) / CL
=( 28500 - 8700 ) / 31350
=0.63 TIMES
C')DSO ={( ACCOUNT RECIVABLES) / NET CREDIT SALES } * 365
= (17800 / 200,000) * 365
= 32 DAYS (ROUNDED TO)
D) FIXED ASSET TURNOVER RATIO = NET SALES / NET FIXED ASSETS
= 200,000 / 43500
= 4.60 TIMES
E) TOTAL ASSETS TURN OVER RATIO = NET SALES /NET TOTAL ASSETS
= 200,000 / 72,000
= 2.77 TIMES
F)LIABILITY TO ASSETS RATIO = TOTAL LIABITIES / TOTAL ASSETS
=39600 / 72000
= 55 %
G)Times-interest-earned ratio = EBIT / INTEREST
= (EBT+ INTEREST) / INTEREST
= (3000 + 1000 )/ 1000
= 4 TIMES
H) NET PROFIT MARGIN = NP / SALES
= 1950 / 200000
0.975%
I) ROE = NP / SHARE HOLDERS EQUITY
= 1950 / 32400
= 6.02%
J) EPS = NP / NO OF SHARES
= 1950/1500
= $1.3
K) P/E RATIO = PRICE / EPS
= 22 / 1.3
= 16.92 TIMES
L) BOOK VALUE PER SHARE = TOTAL EQUITY / NO OF SHARES
=> 32400 / 1500
=>$21.60
M)MARKET TO BOOK VALUE = MPS / BVPS
= 22 / 21.60
= > 1.02 TIMES