Quantitative Problem: Rosnan Industries\' 2018 and 2017 balance sheets and incom
ID: 2817099 • Letter: Q
Question
Quantitative Problem: Rosnan Industries' 2018 and 2017 balance sheets and income statements are shown below.
What is the firm’s 2018 current ratio? Round your answer to two decimal places.
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Solution
The 2018 current ratio indicates that Rosnan has -Select-insufficientsufficientCorrect 1 of Item 3 current assets to meet its current obligations as they come due.
What is the firm’s 2018 total assets turnover ratio? Round your answer to four decimal places.
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Solution
Given the 2018 current and total assets turnover ratios calculated above, if Rosnan’s 2018 quick ratio is 1.0 then an analyst might conclude that Rosnan’s fixed assets are managed -Select-efficientlyinefficientlyCorrect 1 of Item 4.
What is the firm’s 2018 debt-to-capital ratio? Round your answer to two decimal places.
%
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Solution
If the industry average debt-to-capital ratio is 30%, then Rosnan’s creditors have a -Select-smallerbiggerCorrect 1 of Item 5 cushion than indicated by the industry average.
What is the firm’s 2018 profit margin? Round your answer to two decimal places.
%
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Solution
If the industry average profit margin is 12%, then Rosnan’s lower than average debt-to-capital ratio might be one reason for its high profit margin.
-Select-TrueFalseCorrect 1 of Item 6
What is the firm’s 2018 price/earnings ratio? Round your answer to two decimal places.
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Solution
Using the DuPont equation, what is the firm’s 2018 ROE? Round your answer to two decimal places.
%
Explanation / Answer
Answer:
Current Ratio = Current Assets / Current Liabilities
Current Ratio for 2018 = 760 / 385
Current Ratio for 2018 = 1.97: 1
The 2018 Current Ratio indicates that Rosnan has sufficient current assets to meet its current obligations as they come due.
Total Assets Turnover Ratio = Net Sales / Average Total Assets
Average Total Assets = (2,760 + 2,235) / 2
Average Total Assets = $2,497.50
Total Assets Turnover Ratio for 2018 = 2,000 / 2,497.50
Total Assets Turnover Ratio for 2018 = 0.8008 times
Given the 2018 Current and Total Assets Turnover Ratio calculated above, if Rosnan’s 2018 quick ratio is 1.0 then an analyst might conclude that Rosnan’s fixed assets are managed efficiently.
Debt to Capital Ratio = Total Debt / Total Capital
Total Debt = Current Liabilities + Long Term Debt
Total Debt for 2018 = $385 + $450
Total Debt for 2018 = $835
Total Capital = Long Term Debt + Common Stock + Retained Earnings
Total Capital for 2018 = $450 + $1,225 + $700
Total Capital for 2018 = $2,375
Debt to Capital Ratio for 2018 = 835 /2,375
Debt to Capital Ratio for 2018 = 0.3516 or 35.16%
If the Industry average debt-to-capital ratio is 30%, then Rosnan’s creditors have a bigger cushion than indicated by the industry average.
Profit Margin = Net Income / Sales * 100
Profit Margin for 2018 = 353 / 2,000 * 100
Profit Margin for 2018 = 17.65%
If the Industry average profit margin is 12%, then Rosnan’s lower than average debt-to-capital ratio might be one reason for its high profit margin.