Question 8: You are provided with the Income Statement and the Balance Sheet of HTS software, Inc. for 2011.Required: (a) Calculate the ratios stated in the table below for HTS Software, Inc. for 2011 (b) Analyze the current financial position for the company from a time series and cross section viewpoint. (c) Break your analysis into an evaluation of the firm’s liquidity, activity, debt, profitability and market ratios.Historical and Industry Average RatiosHTS Software , Inc.Ratio20102011Industry2011Current Ratio2.6—2.7Quick Ratio1.8—1.75Inventory Turnover4.5—4.7Average Collection Period40days—42 daysTotal Asset Turnover1.2—1Debt Ratio20%—21%Times Interest Earned9—8.9Gross Profit Margin43%—44%Operating Profit Margin30%—32%Net Profit Margin20%—21%Return on total assets12%—13%Return on EquityPrice/Earnings Ratio15%7.3——16%8 Balance SheetHTS Software, Inc.December 31, 2011 AssetsCash EGP 740,000 Accounts receivable 580,000 Inventories 760,000 Total current assets 2,080,000 Gross fixed assets 4,080,000 Less: Accumulated depreciation (1,200,000) Net fixed assets 2,880,000 Total assets 4,960,000 Liabilities and stockholders’ equity Current liabilities Accounts payable EGP 400,000 Notes payable 600,000 Total current liabilities 1,000,000 Long-term debt 400,000 Total liabilities 1,400,000 Stockholders’ equity: Common stock (60,000 shares)Paid-in capital in excess of par-CSRetained Earnings Total stockholders’ equity Total liabilities & stockholders’ equity610,0001,550,0001,400,0003,560,0004,960,000 Income StatementHTS Software, Inc.For the Year Ended December 31, 2011Sales RevenueEGP 3,990,000Less: Cost of Goods Sold 2,280,000Gross Profits 1,710,000Less: Operating Expenses 690,000Operating Profits 1,020,000Less: Interest Expense 171,000Net Profits Before Taxes 849,000Less: Taxes169,800Net Profits After Taxes 679,200* Current market prices per share EGP 50.** There are 365 days in a year.

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EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter3: Evaluation Of Financial Performance

Section: Chapter Questions

Problem 10P

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Question 8:

You are provided with the Income Statement and the Balance Sheet of HTS software, Inc. for 2011.

Required:

(a) Calculate the ratios stated in the table below for HTS Software, Inc. for 2011

(b) Analyze the current financial position for the company from a time series and cross section viewpoint.

Historical and Industry Average Ratios HTS Software , Inc.
Ratio	2010	2011	Industry 2011
Current Ratio	2.6	—	2.7
Quick Ratio	1.8	—	1.75
Inventory Turnover	4.5	—	4.7
Average Collection Period	40days	—	42 days
Total Asset Turnover	1.2	—	1
Debt Ratio	20%	—	21%
Times Interest Earned	9	—	8.9
Gross Profit Margin	43%	—	44%
Operating Profit Margin	30%	—	32%
Net Profit Margin	20%	—	21%
Return on total assets	12%	—	13%
Return on Equity Price/Earnings Ratio	15% 7.3	— —	16% 8

Balance Sheet HTS Software, Inc. December 31, 2011
Assets
Cash	EGP 740,000
Accounts receivable	580,000
Inventories	760,000
Total current assets	2,080,000
Gross fixed assets	4,080,000
Less: Accumulated depreciation	(1,200,000)
Net fixed assets	2,880,000
Total assets	4,960,000
Liabilities and stockholders’ equity
Current liabilities
Accounts payable	EGP 400,000
Notes payable	600,000
Total current liabilities	1,000,000
Long-term debt	400,000
Total liabilities	1,400,000
Stockholders’ equity:
Common stock (60,000 shares) Paid-in capital in excess of par-CS Retained Earnings Total stockholders’ equity Total liabilities & stockholders’ equity	610,000 1,550,000 1,400,000 3,560,000 4,960,000

Income Statement HTS Software, Inc. For the Year Ended December 31, 2011
Sales Revenue	EGP 3,990,000
Less: Cost of Goods Sold	2,280,000
Gross Profits	1,710,000
Less: Operating Expenses	690,000
Operating Profits	1,020,000
Less: Interest Expense	171,000
Net Profits Before Taxes	849,000
Less: Taxes	169,800
Net Profits After Taxes	679,200

^* Current market prices per share EGP 50.

^** There are 365 days in a year.

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