Suppose that you are given the following data for Niles Company :

Note: The data and calculations are based on a $365$day year.

Cash and equivalents $$337,500$

Fixed assets $$975,000$

Sales $$3,750,000$

Net income $$168,750$

Current liabilities $$360,000$

Current ratio $2\mathrm{.}5$

DSO $18\mathrm{.}25$

ROE $12\mathrm{.}00\%$

The current ratio is equal to $(1).$ Plugging in the relevant values for the current ratio and current liabilities, and then solving yields a current assets value of $(2).$ Adding fixed assets to current assets yields a value of total assets of $(3).$

The days sales outstanding $($DSO$)$ ratio is equal to $(4).$ Plugging in the relevant values for the DSO ratio and sales, and then solving yields an accounts receivable balance of $(5).$

Return on equity $($ROE$)$ is to $(6).$ Plugging in the relevant values for ROE and net income yields a value of total common equity of approximately $.$

Recall that Total Assets$=$Total Liabilities and Equity

$.$

Mathematically, total liabilities and equity is equal to $.$ Plugging in the relevant values for total liabilities and equity, current liabilities, and equity $($calculated using the previous identify$)$ and then solving for long$-$term debt, yields a long$-$term debt of $.$

Return on assets $($ROA$)$ is equal to the product of profit margin multiplied by total assets turnover, which is equivalent to $.$ Plugging in the relevant values for net income and total assets yields an ROA of approximately $.$

Recall the following identity:

Current Assets$=$Cash and equivalents$+$Accounts Receivable$+$Inventories

The quick ratio is equal to $.$ Plugging in the relevant values for current assets, current liabilities, and inventories $($calculated using the previous identity$)$ yields a quick ratio of approximately $.$

Suppose that Niles could reduce its DSO from $18\mathrm{.}25$ to $12.$

Given the formula for DSO from the video, as well as the same annual sales of $$3,750,000,$ the new value accounts receivable $($associated with the new DSO$)$ must be $,$ all else equal.

The change $($or the absolute value of the difference between the original and new values$)$ in accounts receivable represents an amount of approximately in cash generated.

As a result of the stock buy back, the ROA and ROE both $.$

Suppose Niles uses the cash generated by the lower DSO to buy back common stock at book value, thus reducing common equity.

As a result of this new, lower, DSO, total debt and total capital $.$ This means that the total debt$/$total capital ratio must $.$

Step $3$: Practice: Ratio analysis

Now it$$s time for you to practice what you$$ve learned.

Suppose that you are given the following data for Niles Company:

Note: The data and calculations are based on a $365$day year.

Cash and equivalents $$787,500$

Fixed assets $$2,275,000$

Sales $$8,750,000$

Net income $$393,750$

Current liabilities $$840,000$

Current ratio $2\mathrm{.}5$

DSO $18\mathrm{.}25$

ROE $12\mathrm{.}00\%$

Fill in the table with the appropriate values. $($Hint: Use the formulas you learned in the video and exercises in the previous stage of the problem.$)$

Accounts receivable $

Current assets $

Total assets $

Fill in the table with the appropriate values. $($Hint: Use the formulas you learned in the video and exercises in the previous stage of the problem.$)$

Hint: Recall that Current Assets$=$Cash and Equivalents$+$Accounts Receivable$+$Inventories

$.$

ROA

Common equity $

Quick ratio

Hint: Recall that Total Liabilities and Equity$=$Total Assets

$.$

Long term debt is $.$

Suppose that Niles could reduce its DSO from $18\mathrm{.}25$ to $12,$ and use the cash that was generated to buy back common stock at book value.

Use the table to indicate the change in accounts receivable, ROA, ROE, and total debt$/$total capital ratio.

Increase

Decrease

Does not change

Accounts receivable

ROA

ROE

Total debt$/$total capital ratioNote: The data and calculations are based on a $365-$day year.

The current ratio is equal to

$.$ Plugging in the relevant values for the current ratio and current liabilities, and then solving yields a current

assets value of

$..$ Adding fixed assets to current assets yields a value of total assets of

The days sales outstanding $($DSO$)$ ratio is equal to

$.$ Plugging in the relevant values for the DSO ratio and sales, and then solving yields an

accounts receivable balance of

$-$

Return on equity $($ROE$)$ is to

$.$ Plugging in the relevant values for ROE and net income yields a value of total common equity of

approximately

Recall that Total Assets $=$ Total Liabilities and Equity.

Mathematically, total liabilitie

qual to

$.$ Plugging in the relevant values for total liabilities and equity, current liabilities, and Mathematically, total liabilities and equity is equal to

$.$ Plugging in the relevant values for total liabilities and equity, current liabilities, and

equity $($calculated using the previous identify$)$ and then solving for long$-$term debt, yields a long$-$term debt of

Return on assets $($ROA$)$ is equal to the product of profit margin multiplied by