Question
FSU Manufacturing, Inc. has the following financial statements data for 2014: Income Statement Balance Sheet Sales $102,500 Cash $40,000 Cost of Goods $50,000 Fixed Assets
FSU Manufacturing, Inc. has the following financial statements data for 2014:
Income Statement |
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| Balance Sheet |
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Sales | $102,500 |
| Cash | $40,000 |
Cost of Goods | $50,000 |
| Fixed Assets | $55,000 |
SG&E Expenses | $35,000 |
| Total Assets | $95,000 |
EBIT | $17,500 |
| Accounts Payable | $12,000 |
Interest Expense | $2,500 |
| Long-term Debt | $25,000 |
Taxes | $6,000 |
| Retained Earnings | $28,000 |
Net Income | $9,000 |
| Paid-in Common Equity | $30,000 |
Trait 1 | Use of financial statements | ||
1. |
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| a. | Compute the firms debt ratio and current ratio.
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| b. | Is the firm profitable? Does the balance sheet balance? Explain.
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| c. | If the firm paid $5,000 in dividends in 2014, what was its retained earnings balance at the end of 2013? (20 points)
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Trait 2 | Student relates financial ratios to improved business decisions
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2. |
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| a. | Compute the firms net profit margin, total asset turnover, and financial leverage multiplier (also known as the equity multiplier).
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| b. | Explain what each of the three ratios above tells you about the firms performance and how they combine to form the firms return on equity.
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| c. | The financial data for the firms major competitors show on average a net profit margin of 16%, total asset turnover of 1.25, but comparable leverage. Identify some possible business decisions that the firm could make so that it would be as attractive an investment as its competitors.
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