CHAPTER 2 PROBLEMS/CORPORATE FINANCE

P2-1 The following data apply to A.L. Kaiser & Company ($ million):

Cash and equivalents.$100.00

Fixed assets$283.50

Sales$..............................................................................................................................1,000.00

Net income.$50.00

Quick ratio...................2.0x

Current ratio..3.0x

DSO 40.0 days

ROE..12.0%

Kaiser has no preferred stockonly common equity, current liabilities, and long-term debt.

Find Kaisers (1) accounts receivable (A/R), (2) current liabilities, (3) current assets, (4) total assets, (5) ROA, (6) common equity, and (7) long-term debt.

P2-2 Data for Unilate Textiles 2015 financial statements are given in Tables 2.1 and 2.2 in the chapter. Compute the 2015 values of the following ratios:

Ratio Unilate Industry 2015 Values

Current ratio3.9x

Days sales outstanding..33.5 days

Inventory turnover7.2x

Fixed assets turnover..4.1x

Debt ratio43.0%

Net profit margin.4.6%

Return on assets..9.9%

b. Briefly comment on Unilates 2015 financial position. Can you see any obvious strengths or weaknesses?

c. Compare Unilates 2015 ratios with its 2016 ratios, which are presented in Table 2.6. Comment on whether you believe Unilates financial position improved or deteriorated during 2016.

P2-3 Industry Average Ratios

Current ratio2.0x Fixed assets turnover6.0x

Debt ratio30.0% Total assets turnover.3.0x

Times interest earned..7.0x Profit margin on sales3.0%

Inventory turnover8.5x Return on total assets9.0%

Days sales outstanding24.0 days return on common equity12.9%

Finnerty Furniture Company: Balance Sheet as of December 31 ($ million)

Cash$...............................................45 Accounts payables..$45

Marketable securities..33 Notes payable..45

Net receivables.66 other current liabilities..21

Inventories.159 Total current liabilities.$111

Total current assets..$303 Long-term debt24

Total liabilities$135

Gross fixed assets.225 Common stock.114

Less depreciation.6(78) Retained earnings.201

Net fixed assets.$147 Total stockholders equity..$315

Total assets..$450 Total liabilities and equity$450

Finnerty Furniture Company: Income Statement for Year Ended December 31 ($ million)

Net sales..$795.0

Cost of goods sold.(660.0)

Gross profit.$135.0

Selling expenses(73.5)

Depreciation expense. (12.0)

Earnings before interest and taxes (EBIT)$49.5

Interest expense.(4.5)

Earnings before taxes (EBT).. $45.0

Taxes (40%).(18.0)

Net income$27.

a. Calculate all the ratios that appear for the industry for Finnerty Furniture Company and perform an analysis of the financial health of the company when compared to the overall industry.