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 $ 14,100 Cost of goods sold 4,560 Other expenses 4,217 Depreciation 2,818 Earnings before interest and taxes (EBIT) $ 2,505 Interest expense 735 Income before tax $ 1,770 Taxes (at 30%) 531 Net income $ 1,239 Dividends $ 976 BALANCE SHEET (Figures in $ millions) End of Year Start of Year Assets Cash and marketable securities $ 99 $ 168 Receivables 2,882 2,690 Inventories 237 288 Other current assets 917 982 Total current assets $ 4,135 $ 4,128 Net property, plant, and equipment 20,073 20,015 Other long-term assets 4,316 3,870 Total assets $ 28,524 $ 28,013 Liabilities and shareholders’ equity Payables $ 2,664 $ 3,140 Short-term debt 1,469 1,623 Other current liabilities 861 837 Total current liabilities $ 4,994 $ 5,600 Long-term debt and leases 4,528 5,043 Other long-term liabilities 6,278 6,249 Shareholders’ equity 12,724 11,121 Total liabilities and shareholders’ equity $ 28,524 $ 28,013 Calculate the following financial ratios for Phone Corporation: (Use 365 days in a year. Do not round intermediate calculations. Round your final answers to 2 decimal places.) Answer is complete but not entirely correct. a. Return on equity (use average balance sheet figures) 10.39selected answer correct % b. Return on assets (use average balance sheet figures) 6.20selected answer correct % c. Return on capital (use average balance sheet figures) 10.49selected answer correct % d. Days in inventory (use start-of-year balance sheet figures) 23.05selected answer correct days e. Inventory turnover (use start-of-year balance sheet figures) 15.83selected answer correct f. Average collection period (use start-of-year balance sheet figures) 69.63selected answer correct days g. Operating profit margin 17.77selected answer incorrect % h. Long-term debt ratio (use end-of-year balance sheet figures) 0.16selected answer incorrect i. Total debt ratio (use end-of-year balance sheet figures) 0.55selected answer correct j. Times interest earned 3.41selected answer correct k. Cash coverage ratio 0.02selected answer incorrect l. Current ratio (use end-of-year balance sheet figures) 0.83selected answer correct m. Quick ratio (use end-of-year balance sheet figures) 0.06selected answer incorrect

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 $ 14,100 Cost of goods sold 4,560 Other expenses 4,217 Depreciation 2,818 Earnings before interest and taxes (EBIT) $ 2,505 Interest expense 735 Income before tax $ 1,770 Taxes (at 30%) 531 Net income $ 1,239 Dividends $ 976 BALANCE SHEET (Figures in $ millions) End of Year Start of Year Assets Cash and marketable securities $ 99 $ 168 Receivables 2,882 2,690 Inventories 237 288 Other current assets 917 982 Total current assets $ 4,135 $ 4,128 Net property, plant, and equipment 20,073 20,015 Other long-term assets 4,316 3,870 Total assets $ 28,524 $ 28,013 Liabilities and shareholders’ equity Payables $ 2,664 $ 3,140 Short-term debt 1,469 1,623 Other current liabilities 861 837 Total current liabilities $ 4,994 $ 5,600 Long-term debt and leases 4,528 5,043 Other long-term liabilities 6,278 6,249 Shareholders’ equity 12,724 11,121 Total liabilities and shareholders’ equity $ 28,524 $ 28,013 Calculate the following financial ratios for Phone Corporation: (Use 365 days in a year. Do not round intermediate calculations. Round your final answers to 2 decimal places.) Answer is complete but not entirely correct. a. Return on equity (use average balance sheet figures) 10.39selected answer correct % b. Return on assets (use average balance sheet figures) 6.20selected answer correct % c. Return on capital (use average balance sheet figures) 10.49selected answer correct % d. Days in inventory (use start-of-year balance sheet figures) 23.05selected answer correct days e. Inventory turnover (use start-of-year balance sheet figures) 15.83selected answer correct f. Average collection period (use start-of-year balance sheet figures) 69.63selected answer correct days g. Operating profit margin 17.77selected answer incorrect % h. Long-term debt ratio (use end-of-year balance sheet figures) 0.16selected answer incorrect i. Total debt ratio (use end-of-year balance sheet figures) 0.55selected answer correct j. Times interest earned 3.41selected answer correct k. Cash coverage ratio 0.02selected answer incorrect l. Current ratio (use end-of-year balance sheet figures) 0.83selected answer correct m. Quick ratio (use end-of-year balance sheet figures) 0.06selected answer incorrect

Corporate Financial Accounting

14th Edition

ISBN:9781305653535

Author:Carl Warren, James M. Reeve, Jonathan Duchac

Publisher:Carl Warren, James M. Reeve, Jonathan Duchac

Chapter3: The Adjusting Process

Section: Chapter Questions

Problem 3.4ADM

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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	$	14,100
Cost of goods sold		4,560
Other expenses		4,217
Depreciation		2,818
Earnings before interest and taxes (EBIT)	$	2,505
Interest expense		735
Income before tax	$	1,770
Taxes (at 30%)		531
Net income	$	1,239
Dividends	$	976

BALANCE SHEET
(Figures in $ millions)
	End of Year		Start of Year
Assets
Cash and marketable securities	$	99		$	168
Receivables		2,882			2,690
Inventories		237			288
Other current assets		917			982
Total current assets	$	4,135		$	4,128
Net property, plant, and equipment		20,073			20,015
Other long-term assets		4,316			3,870
Total assets	$	28,524		$	28,013
Liabilities and shareholders’ equity
Payables	$	2,664		$	3,140
Short-term debt		1,469			1,623
Other current liabilities		861			837
Total current liabilities	$	4,994		$	5,600
Long-term debt and leases		4,528			5,043
Other long-term liabilities		6,278			6,249
Shareholders’ equity		12,724			11,121
Total liabilities and shareholders’ equity	$	28,524		$	28,013

Calculate the following financial ratios for Phone Corporation: (Use 365 days in a year. Do not round intermediate calculations. Round your final answers to 2 decimal places.)

Answer is complete but not entirely correct.


a.	Return on equity (use average balance sheet figures)	10.39selected answer correct	%
b.	Return on assets (use average balance sheet figures)	6.20selected answer correct	%
c.	Return on capital (use average balance sheet figures)	10.49selected answer correct	%
d.	Days in inventory (use start-of-year balance sheet figures)	23.05selected answer correct	days
e.	Inventory turnover (use start-of-year balance sheet figures)	15.83selected answer correct
f.	Average collection period (use start-of-year balance sheet figures)	69.63selected answer correct	days
g.	Operating profit margin	17.77selected answer incorrect	%
h.	Long-term debt ratio (use end-of-year balance sheet figures)	0.16selected answer incorrect
i.	Total debt ratio (use end-of-year balance sheet figures)	0.55selected answer correct
j.	Times interest earned	3.41selected answer correct
k.	Cash coverage ratio	0.02selected answer incorrect
l.	Current ratio (use end-of-year balance sheet figures)	0.83selected answer correct
m.	Quick ratio (use end-of-year balance sheet figures)	0.06selected answer incorrect

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