Financial Ratios

Financial Ratios

Question 1:

balance sheet

2008

Assets

Current assets:

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Financial Ratios

Cash and marketable securities

$421

Accounts receivable

1109

Inventory

1,760

Total

2/24

Financial Ratios

3,290

Fixed assets:

Gross plant and equipment

5812

Less: Depreciation

840

3/24

Financial Ratios

Net plant and equipment

4982

Other long-term assets

892

Total

5864

Total assets

4/24

Financial Ratios

$9,154

Liabilities and Equity

Current liabilities:

Accrued wages and taxes

$316

Accounts payable

5/24

Financial Ratios

867

Notes payable

872

Total

2,055

Long-term debt:

3,090

6/24

Financial Ratios

Stockholders’ equity:

Preferred stock (25 million  shares)

60

Common stock and paid-in surplus  (200 million shares)

637

Retained earnings

7/24

Financial Ratios

3,312

Total

4,009

Total liabilities and equity

$9,154

8/24

Financial Ratios

income statement

Net sales

$4,980

Less: Cost of goods sold

2371

Gross profits

9/24

Financial Ratios

2,609

Less: Depreciation

200

Earnings before interest and taxes  (EBIT)

2,409

Less: Interest

315

Earnings before taxes (EBT)

10/24

Financial Ratios

2,094

Less: Taxes

767

Net income

$1,327

Less: Preferred stock dividends

$60

11/24

Financial Ratios

Net income available to common  stock holders

1,267

Less: Common stock dividends

395

Addition to retained earnings

$872

Earnings per share (EPS)

12/24

Financial Ratios

$6,335

Dividends per share (DPS)

$1,975

Book value per share (BVPS)

$19,745

Market value (price) per share  (MVPS)

$26,850.00

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Financial Ratios

Question 2:

Financial ratios:

The table below summarises the financial ratios calculated:

Garners’ Platoon Mental Health Care, INC.

2008

Industry

Current  ratio

1.60097324

2.0times

14/24

Financial Ratios

Quick  ratio

0.74452555

1.2times

Cash  ratio

0.13624595

0.25times

Inventory  turnover ratio

1.34715909

15/24

Financial Ratios

2.50times

Day’s  sale’s in inventory

270.940531

146.00days

Average collection period

81.2821285

91.00days

Average  payment period

16/24

Financial Ratios

133.469

100.00days

Fixed  asset turnover ratio

0.84924966

1.25times

Sales  to working capital

2.48751249

4.00times

Total  asset turnover ratio

17/24

Financial Ratios

0.54402447

0.50times

Capital  intensity ratio

1.83815261

2.00times

Debt  ratio

56%

50.00%

18/24

Financial Ratios

Debt-to-equity  ratio

0.33755735

1.00times

Equity  multiplier

13.133429

2.00times

Times  interest earned

7.64761905

19/24

Financial Ratios

7.25times

Cash  coverage ratio

8.21

8.00times

Profit  margin

27%

18.75%

Basic  earnings power ratio

20/24

Financial Ratios

26%

19.90%

ROA

14%

9.38%

ROE

190%

18.75%

Dividend  payout ratio

21/24

Financial Ratios

31%

35%

Market-to-book  ratio

1.35983793

1.300times

PE  ratio

4.23835833

4.100times

22/24

Financial Ratios

Sustainable growth is determined by multiplying return on equity by th retention ration, the retention ratio is determined by the difference between earnings per share and dividends per share by earnings per share. Retention ratio is = 69% and ROE = 190%, this means that sustainable growth =131.03%

Question 3:

DuPont system:

ROE = profit margin X total asset turnover X Equity Multiplier

ROE = 190%

Expenses:

Expenses management is reflected by the profit margin, the firm’s profit margin is 27% while the industry value is 18.75%, and this means that the firm manages its expenses properly.

Debt:

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Financial Ratios

Debt management is reflected by the equity multiplier, the equity multiplier for the firm is 13.13 while the industry value is 2, and this means that the firm finances more using debt. This is also reflected by the debt equity ratio whose value is 0.337 while the industry value is 1.

Assets:

Asset management is reflected by the total asset turnover, the value for the firm is 0.54402447 times while the industry value is 0.50 times, and given that the firm’s value is greater than the industry value then the conclusion is that the firm manages its assets properly. This is also reflected by the ROA where the value is 14% for the firm and 9.38% for the industry.

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