Cochrane Furniture Company has been experiencing lowprofitability in recent year
ID: 2662137 • Letter: C
Question
Cochrane Furniture Company has been experiencing lowprofitability in recent years. As a result, the board of directorshas replaced the president of the firm with a new president, AndrewAlston who has asked you to make an analysis of the firm'sfinancial position using the extended Du Pont equation. In additionto the information given below, you have been informed by the newpresident that the firm has no lease payment, but has a $2 millionsinking fund payment on its debt. Cochrane's financial statementsare as follows:Cochrane Furniture: Balance Sheet as of December 31, 2002(Milllions of Dollars) Cash $45 Accounts Payable $45 MarketableSecurities 33 NotesPayable 45 NetReceibables 66 Othercurrent liabilities 21 Inventories 159 Total current liab. $111 Total Current asst. $303 Long TermDebt 24 TotalLiabilities $135 Gross fixed assets 225 CommonStock $114 RetainedEarnings 201 Lessdeprec. 78 Total Stockholder's eq. $315 Net fixedassets $147 Total Liab &Equ. $450 TotalAssets $450 _________________________________________________________ Cochrane Furniture: Income Statement for year Ended Dec. 31,2002(Mill of Doll) NetSales $795.0 Cost of GoodsSold 660.0 GrossProfit $135.0 Sellingexpenses 73.5 EBITDA 61.5 DepreciationExp. 12.0 EBIT $49.5 InterestExpense 4.5 Earnings BeforeTaxes 45.0 Taxes(40%) 18.0 NetIncome 27.0 Calculate the following ratios: 1. Current ratio 2. Debt to asset 3. Times interest earned 4. EBITDA Coverage 5. Inventory Turnover 6. DSO (Days of sales outstanding) 7. Total Asset Turnover 8. ROE 9. ROA 10. Profit Margin My lines did not even up on the Balance sheet. The TotalAssets should equal total liabilities and equity, of course, so mylines should be up 1 on the balance sheet. If there are anyquestions, please email me. Thanks Cochrane Furniture Company has been experiencing lowprofitability in recent years. As a result, the board of directorshas replaced the president of the firm with a new president, AndrewAlston who has asked you to make an analysis of the firm'sfinancial position using the extended Du Pont equation. In additionto the information given below, you have been informed by the newpresident that the firm has no lease payment, but has a $2 millionsinking fund payment on its debt. Cochrane's financial statementsare as follows:
Cochrane Furniture: Balance Sheet as of December 31, 2002(Milllions of Dollars) Cash $45 Accounts Payable $45 MarketableSecurities 33 NotesPayable 45 NetReceibables 66 Othercurrent liabilities 21 Inventories 159 Total current liab. $111 Total Current asst. $303 Long TermDebt 24 TotalLiabilities $135 Gross fixed assets 225 CommonStock $114 RetainedEarnings 201 Lessdeprec. 78 Total Stockholder's eq. $315 Net fixedassets $147 Total Liab &Equ. $450 TotalAssets $450 _________________________________________________________ Cochrane Furniture: Income Statement for year Ended Dec. 31,2002(Mill of Doll) NetSales $795.0 Cost of GoodsSold 660.0 GrossProfit $135.0 Sellingexpenses 73.5 EBITDA 61.5 DepreciationExp. 12.0 EBIT $49.5 InterestExpense 4.5 Earnings BeforeTaxes 45.0 Taxes(40%) 18.0 NetIncome 27.0 Calculate the following ratios: 1. Current ratio 2. Debt to asset 3. Times interest earned 4. EBITDA Coverage 5. Inventory Turnover 6. DSO (Days of sales outstanding) 7. Total Asset Turnover 8. ROE 9. ROA 10. Profit Margin My lines did not even up on the Balance sheet. The TotalAssets should equal total liabilities and equity, of course, so mylines should be up 1 on the balance sheet. If there are anyquestions, please email me. Thanks Cash $45 Accounts Payable $45 MarketableSecurities 33 NotesPayable 45 NetReceibables 66 Othercurrent liabilities 21 Inventories 159 Total current liab. $111 Total Current asst. $303 Long TermDebt 24 TotalLiabilities $135 Gross fixed assets 225 CommonStock $114 RetainedEarnings 201 Lessdeprec. 78 Total Stockholder's eq. $315 Net fixedassets $147 Total Liab &Equ. $450 TotalAssets $450 _________________________________________________________ Cochrane Furniture: Income Statement for year Ended Dec. 31,2002(Mill of Doll) NetSales $795.0 Cost of GoodsSold 660.0 GrossProfit $135.0 Sellingexpenses 73.5 EBITDA 61.5 DepreciationExp. 12.0 EBIT $49.5 InterestExpense 4.5 Earnings BeforeTaxes 45.0 Taxes(40%) 18.0 NetIncome 27.0 Calculate the following ratios: 1. Current ratio 2. Debt to asset 3. Times interest earned 4. EBITDA Coverage 5. Inventory Turnover 6. DSO (Days of sales outstanding) 7. Total Asset Turnover 8. ROE 9. ROA 10. Profit Margin My lines did not even up on the Balance sheet. The TotalAssets should equal total liabilities and equity, of course, so mylines should be up 1 on the balance sheet. If there are anyquestions, please email me. Thanks
Explanation / Answer
(1) CurrentRatio = [Current Assets / CurrentLiabilities]
Current Assets = [Cash + Marketable Securities +
Net Receivables + Inventories]
Total Current Assets = [$45 + $33 + $66 + $159]
Current Assets = $303
Current Liabilities = [Accounts Payable + Notes Payable +
Other Current Liabilities]
Total Current Liabilities = [$45 + $45 + $21]
Current Liabilities = $111
Current Ratio = [$303 / $111]
[Or]
Debt to Assets Ratio = [(Total Assets – Total Equity) / TotalAssets]
Debt to Assets Ratio = [($450 - $315) / $450]
Debt to Assets Ratio = [$135 / $450]
Times interest earned ratio = [$49.50 / $4.5]
Principle Paid + Lease Paid)]
EBITDA Coverage ratio = [$61.50 / $4.50]
Inventory Turnover ratio = [$660 / $159]
(6)DSO (Days of Sales Outstanding) = [AccountsReceivable /
(Total Credit Sales / Number of Days)]
DSO = [$66 / ($795 / Number of days)]
Number of Days (or) Day’s sales in inventory = 365 days /Inventory Turnover
Number of days = 365 days / 4.15 times
Number of days = 87.95 days (or) 88 days
DSO = [$66 / ($795 / 88 days)]
DSO = [$66 / 9.03]
DSO = 7.31
Total Asset Turnover = [$795 / $450]
Total Asset Turnover = 1.76 times
ROE = [$27 / $315]
ROE = 8.57%
ROA = [$27 / $450]
ROA = 6%
Profit Margin = [$27 / $795]
Profit Margin = 3.396%