Group 9
Gwyneth Ann Patrice Enriquez
Icel Estoque
Irish Moera Laboy
Kyle Walter Cucio
Mary Grace Bautista
Princess Ebuen
Financial Ratios. As you can see, someone has spilled ink over some of the entries in the balance sheet and
income statement of Transylvania Railroad. Use the information from the tables to work out the following
missing entries, and then calculate the company’s return on equity. Note: Inventory turnover, average collection
period, and return on equity are calculated using start-of-year, not average, values.
Long-term debt ratio
0.4
Times interest earned
8.0
Current ratio
1.4
Quick ratio
1.0
Cash ratio
0.2
Inventory turnover
5.0
Average collection period 73 days
INCOME STATEMENT (Figures in $ millions)
Net sales
Cost of goods sold
Selling, general, and administrative expenses
10
Depreciation
20
Earnings before interest and taxes (EBIT)
Interest expense
Income before tax
Tax (35% of income before tax)
Net income
BALANCE SHEET (Figures in $ millions)
This Year Last Year
Assets
Cash and marketable securities
20
Accounts receivable
34
Inventories
26
Total current assets
80
Net property, plant, and equipment
25
Total assets
105
Liabilities and shareholders’ equity
Accounts payable
25
20
Notes payable
30
35
Total current liabilities
55
Long-term debt
20
Shareholders’ equity
30
Total liabilities and shareholders’ equity
a. Total assets
Total liabilities + total equity= total asset
Total asset= 115
b. Total current liabilities
Accounts payable = 25
Notes payable= 30
Total current liabilities= 55
c. Total current assets
Current ratio= 1.4
Current asset
Current liabilities
Current asset
55
1.4 x 55
Current assets= 77
= 1.4
= 1.4
115
105
d. Cash and marketable securities
Cash ratio = 0.2
Cash
Current liabilities
=0.2
Current assets
55
=0.2
0.2 × 55
Cash and marketable securities = 11
e. Accounts receivable
Quick ratio = 1.0
Cash + Accounts receivable
Current liabilities
=1.0
11 + Accounts receivable =1.0
55
(1.0 × 55) – 11
Accounts receivable =44
f. Inventory
Total current assets = 77
Cash + Account receivable + Inventory = 77
11 + 44 + Inventory = 77
77 – 11 – 44
Inventory = 22
g. Fixed assets
Total assets = current assets + fixed assets
115 = 77 + fixed assets
115 – 77
Fixed assets= 38
h. Long-term debt
Long-term debt + Equity = 115 – 55= 60
Long−term debt
=0.4
Long−term debt +Equity
Long−term debt = 0.4
60
0.4 × 60
Long-term debt = 24
i. Shareholders’ equity
60 – 24
Shareholders’ equity = 36
j. Net sales
Average receivable = (44+34) / 2 = 39
Receivables’ collection period = 73
Average receivable = 73
Sales
365
39
Sales
365
=73
Net sales = 195
k. Cost of goods sold
Average Inventory = (22+26) / 2 = 24
Inventory turnover = 5.0
Cost of goods sold = 5.0
Average inventory
Cost of goods sold =5.0
24
5.0 ×24
Cost of goods sold = 120
l. EBIT
195 – 120 – 10 – 20
Earnings before interest and taxes (EBIT) = 45
m. Interest expense
Time-interest-earned = 8.0
EBIT + Depreciation =8.0
Interest
45+20 = 8.0
Interest
45+20
8.0
Interest Expense = 8.125
n. Income before tax
Earnings before tax = EBIT – interest
Earnings before tax = 45 – 8.125
Income before tax = 36.875
o. Tax
Income before tax (EBIT) x Tax rate
36.875 x .35
Tax = 12.91
p. Net income
Income before tax – tax
36.875 – 12.91
Net income = 23.965
BALANCE SHEET (Figures in $ millions)
This Year Last Year
Assets
Cash and marketable securities
11
20
Accounts receivable
44
34
Inventories
22
26
Total current assets
77
80
Net property, plant, and equipment
38
25
Total assets
115
105
Accounts payable
25
20
Notes payable
30
35
Total current liabilities
55
55
Long-term debt
24
20
Shareholders’ equity
36
30
Total liabilities and shareholders’ equity
115
105
Liabilities and shareholders’ equity
INCOME STATEMENT (Figures in $ millions)
Net sales
195
Cost of goods sold
120
Selling, general, and administrative expenses
10
Depreciation
20
Earnings before interest and taxes (EBIT)
45
Interest expense
Income before tax
Tax (35% of income before tax)
Net income
8.125
36.875
12.91
23.965