Complete the following tables using the following Item Value Current assets $40,
ID: 2811015 • Letter: C
Question
Complete the following tables using the following
Item
Value
Current assets
$40,000
Current liabilities
$20,000
Assets
$500,000
Liabilities
$100,000
Equity
$400,000
Ratios
Formula
Calculations
Is it in red or green zone?
Current ratio
Debt-to-asset ratio
Item
Value
Gross revenue
$100,000
Operating expenses
$30,000
Depreciation
$4,000
Interest expense
$0
NFIO
$70,000
Nonbusiness income
$30,000
Taxes
$5,000
Principal
$5,000
Interest
$4,000
Family living expenses
$30,000
Ratios
Formula
Calculations
Is it in red or green zone?
Return on assets
Operating profit margin
Asset turnover ratio
Term debt coverage ratio
How would you summarize the financial position of this farmer?
If you are a loan officer, will you give him/her a loan?
Show that the Dupont identity for ROA holds. Show calculations please
Item
Value
Current assets
$40,000
Current liabilities
$20,000
Assets
$500,000
Liabilities
$100,000
Equity
$400,000
Explanation / Answer
1 current ratio = current assets / current liabilities idle good indicator is 2:1
= $ 40000 / $ 20000 = 2 current ratio is in green zone
2. debt to asset ration = debt / total assets idle is less the ratio lesser the risk
= $1,20,000 / $540000 = 0.22 the ratio is in green zone
3. return on total assets = net income / total assets
net income = gross revenue - operating expenses- depriciation
= $1,00,000 - 34,000 = $66,000
total assets = fixed assets + current assets = $ 5,40,000
ROA = $66,000 / 5,40,000 = 0.12 it is in gren zone
4. operating profit margin = operating profit / total income
operating profit = gross revenue - operating expenses
= 1,00,000 - 30,000 = 70,000
= $70,000 / $66.000 = 1.06 it is in red zone
5. term debt coverage ratio = net oprating income / total debt
= 66000 / 120000 = 0.55 it is in green zone
if iam loan officer i will give loan