Chapter 3 Finance

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Nicole Morrissey CQ 4, 7 BUS2215 Problems 1-8, 12, 17, 18 February 8, 2012 4. Financial Ratios Fully explain the kind of information the following financial ratios provide about a firm: Quick Ratio | This ratio measures a company’s ability to meet its short-term obligations with its most liquid assets, which is why inventory is omitted. | Cash Ratio | This assesses a company’s financial durability by examining whether it is at least profitable enough to pay off its interest expenses. | Total Asset Turnover | Tells us the amount of sales generated for every dollar worth of assets. | Equity Multiplier | Tells us how a company uses debt to finance its assets. | Long-term Debt Ratio | Measures…show more content…
0.1827 = Equity Multiplier (0.068*1.95) 1.3778 = Equity Multiplier Equity Multiplier = 1 + Debt to Equity Ratio 1.3778 – 1 = Debt to Equity Ratio 0.3778 = Debt to Equity Ratio 12. Debt to Equity Ratio = 0.65 times ROA = 8.5% Total Equity = $540,000 Equity Multiplier = 1 + D/E = 1.65 ROE = ROA * Equity Multiplier ROE =Net Income/Total Equity = 0.085 * 1.65 0.14 =Net Income/ $540,000 = 14% 0.14*$540,000 = Net Income $75,600 =Net Income 17. Ratio | 2008 | 2009 | Current Ratio = CA/CL | = $68,276/$61,434 = 1.11 times | = $76,213/$64,203= 1.19 times | Quick Ratio = (CA – Inventory)/CL | = ($68,276-$28,760)/$61,434 = 0.48 times | = ($76,213 - $42,650)/$64,203= 0.52 times | Cash Ratio = Cash/CL | = $8,436/$61,434 = 0.14 times | = $10,157/$64,203= 0.16 times | NWC to Total Assets = NWC/TA (CA – CL)/TA | = ($68,276 - $61,434)/$295,432 = 0.023= 2.3% | = ($76,213- $64,203)/$324,519= 0.037= 3.7% | Debt to Equity Ratio = TD/TE | = $86,434/$208,998 = 0.41 times | = $96,203/$228,316= 0.42 times | Equity Multiplier = 1 + D/E | = 1 + 0.41 = 1.41 times | = 1 + 0.42= 1.42 times | Total Debt Ratio

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