Times Interest Earned Ratio A1 Compute the times interest earned ratio and use it to analyze liabilities. Interest expense is often called a fixed expense because it usually does not vary due to short-term changes in sales or other operating activities. While fixed expenses can be good when a company is growing, they create risk. The risk is that a company might be unable to pay fixed expenses if sales decline. Consider Diego Co.'s results for 2019 and two possible outcomes for year 2020 in O Exhibit 11.6. Expenses excluding interest are expected to remain at 75% of sales. Expenses that change with sales volume are variable expenses. Interest expense is fixed at $60 per year. Page 410 EXHIBIT 11.6 Actual and Projected Results 2020 Projections $ millions 2019 Sales Increase Sales Decrease Sales $600 $900 $300 Expenses (75% of sales) 450 675 225 Income before interest 150 225 75 Interest expense (fixed) бо 60 60 Net income $ 90 $165 $ 15

Times Interest Earned Ratio A1 Compute the times interest earned ratio and use it to analyze liabilities. Interest expense is often called a fixed expense because it usually does not vary due to short-term changes in sales or other operating activities. While fixed expenses can be good when a company is growing, they create risk. The risk is that a company might be unable to pay fixed expenses if sales decline. Consider Diego Co.'s results for 2019 and two possible outcomes for year 2020 in O Exhibit 11.6. Expenses excluding interest are expected to remain at 75% of sales. Expenses that change with sales volume are variable expenses. Interest expense is fixed at $60 per year. Page 410 EXHIBIT 11.6 Actual and Projected Results 2020 Projections $ millions 2019 Sales Increase Sales Decrease Sales $600 $900 $300 Expenses (75% of sales) 450 675 225 Income before interest 150 225 75 Interest expense (fixed) бо 60 60 Net income $ 90 $165 $ 15

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter9: Corporate Valuation And Financial Planning

Section: Chapter Questions

Problem 3P: AFN Equation Refer to Problem 9-1. Return to the assumption that the company had 5 million in assets...

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AFN Equation Refer to Problem 9-1. Return to the assumption that the company had 5 million in assets at the end of 2018, but now assume that the company pays no dividends. Under these assumptions, what would be the additional funds needed for the coming year? Why is this AFN different from the one you found in Problem 9-1?
Perform the common sizing analysis for 2019 and 2018. Comment on your observations on the changes in the percentages. e) the conundrum that although sales have nearly doubled, the firm makes a loss in 2019. What has caused this situation?
PART A Utilize the 2020 financial statements for Carrium Insights Inc. provided and assume the company is currently operating at below capacity. Required: Prepare Pro-Forma statements for 2021 (rounding all figures to the nearest dollar) assuming: ➢ All costs/income/expenses and net working capital vary directly with sales/revenue. ➢ No new equity is raised. ➢ Sales are projected to increase by 15%. ➢ The tax rate and the dividend payout ratio will remain constant. ➢ Depreciation and Interest Expense will remain unchanged. Clearly state if Carrium Insights Inc. will require external financing or if the company would have excess financing in 2021, and how much. PART B Based on the results of the pro-forma statement in part A above, Carrium is considering buying back some of its common shares to reduce its potential excess financing position. The Finance Manager is seeking to determine if the current value of its stock is fairly priced. The following anticipated dividend payout…
Utilize the 2019 financial statements for Micron Industries provided on page 1 and assume that the company is currently operating below capacity, at 80%.Required: Prepare Pro-Forma statements for 2020 (rounding all figures to the nearest dollar) assuming: All costs/income/expenses and net working capital vary directly with sales/revenue.  No new equity is raised. Sales are projected to increase by 15% The tax rate and the dividend payout ratio will remain constant.  Interest Expense and Depreciation Expense will remain unchanged.Clearly state if Micron Industries will require external financing or would have excess financing in 2020, and how much.
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Comparison between 2020E ratios and industry averages - (a) Liquidity ratios (1) Are the 2020E ratios above, below, or equal to the industryaverages? (2) Is this a good thing or a bad thing for the company? and (3) What can be done to improve the weak ratios or to maintainthe strong ones? (b) Solvency ratios (1) Are the 2020E ratios above, below, or equal to the industryaverages? (2) Is this a good thing or a bad thing for the company? and (3) What can be done to improve the weak ratios or to maintainthe strong ones?
Toby’s forecasted 2021 financial statements follow, along with some industry average ratios. Calculate Toby’s 2021 forecasted ratios and fill in the above table. Calculate the EPS and DPS. The company has a 40% payout ratio. Please provide the solutions for the EPS, DPS, Days Sales Outstanding, Fixed Asset Turnover, Total Asset Turnover, Return on Assets, Return on Equity, Total Debt Ratio, Profit Margin on Sales, P/E Ratio.
1.Calculate the break‐even point for Pearson & Litt for 2019 and 2020. 2. Compare the results of the 2019 and 2020 break‐even point and explain why there might be a difference. 3. The current ratio reflects the relationship between the value of the current assets and the extent of the current liabilities of a business. 4. Calculate the current ratio for Pearson & Litt for 2019. 5. Explain the results of the current‐test ratio. HINT: Include the minimum ratio recommended for the ratio in your answer. 6. The gross profit margin indicates how profitable sales have been. 7. Calculate the gross profit margin for Pearson & Litt for 2020. 8. Explain the results of the gross profit margin calculation. 9. Financial planning forms an integral part of the strategic planning of a firm. 10. Differentiate between traditional budgeting and zero‐base budgeting. 11. Recommend one of these budgeting methods to Pearson & Litt and provide reasons for your recommendation.
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The Answer is incorrect: Please answer: AFN equation Broussard Skateboard's sales are expected to increase by 15% from $7.4 million in 2019 to $8.51 million in 2020. Its assets totaled $4 million at the end of 2019. Broussard is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2019, current liabilities were $1.4 million, consisting of $450,000 of accounts payable, $500,000 of notes payable, and $450,000 of accruals. The after-tax profit margin is forecasted to be 3%, and the forecasted payout ratio is 75%. Use the AFN equation to forecast Broussard's additional funds needed for the coming year. Enter your answer in dollars. For example, an answer of $1.2 million should be entered as $1,200,000. Do not round intermediate calculations. Round your answer to the nearest dollar. Answer is not 326175
Use this problem to answer the following requirements: Mabuhay Corporation generated these gross profits during the past recent ears when the sales price was 10% lower during 2020 compared to 2019. 2020 Sales P1,944,000; 2020 Cost of Sales P1,152,000; 2019 Sales P1,900,800; 2019 Cost of Sales P1,113,600. The decrease in gross profit due to decrease in selling price must be
9. Which of the following strategy enables a manager to report a higher current ratio? Select one: a. Pay off accounts payable prior to year-end b. Purchase more fixed assets c. Purchase more fixed income securities d. Invest more in long term debt