Problem 4-7 Financial Ratios (LO3)

Here are simplified financial statements for Phone Corporation in a recent year:

INCOME STATEMENT
(Figures in $ millions)
Net sales	$	12,200
Cost of goods sold		3,560
Other expenses		4,037
Depreciation		2,218
Earnings before interest and taxes (EBIT)	$	2,385
Interest expense		635
Income before tax	$	1,750
Taxes (at 30%)		525
Net income	$	1,225
Dividends	$	746

BALANCE SHEET
(Figures in $ millions)
	End of Year				Start of Year
Assets
Cash and marketable securities	$	79			$	148
Receivables		1,882				2,290
Inventories		137				188
Other current assets		817				882
Total current assets	$	2,915			$	3,508
Net property, plant, and equipment		19,873				19,815
Other long-term assets		4,116				3,670
Total assets	$	26,904			$	26,993
Liabilities and shareholders equity
Payables	$	2,464			$	2,940
Short-term debt		1,369				1,523
Other current liabilities		761				737
Total current liabilities	$	4,594			$	5,200
Long-term debt and leases		9,508				8,623
Other long-term liabilities		6,078				6,049
Shareholders equity		6,724				7,121
Total liabilities and shareholders equity	$	26,904			$	26,993

a.	Return on equity (use average balance sheet figures)	17.69	%
b.	Return on assets (use average balance sheet figures)	6.19	%
c.	Return on capital (use average balance sheet figures)		%
d.	Days in inventory (use start-of-year balance sheet figures)		days
e.	Inventory turnover (use start-of-year balance sheet figures)
f.	Average collection period (use start-of-year balance sheet figures)		days
g.	Operating profit margin		%
h.	Long-term debt ratio (use end-of-year balance sheet figures)
i.	Total debt ratio (use end-of-year balance sheet figures)
j.	Times interest earned
k.	Cash coverage ratio
l.	Current ratio (use end-of-year balance sheet figures)
m.	Quick ratio (use end-of-year balance sheet figures)