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Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977
Textbook Problem

BALANCE SHEET ANALYSIS Complete the balance sheet and sales information using the following financial data:

Total assets turnover: 15×

Days sales outstanding: 36.5 daysa

Inventory turnover ratio: 5×

Fixed assets turnover: 3.0×

Current ratio: 2.0×

Gross profit margin on sales: (Sales − Cost of goods sold)/Sales = 25%

aCalculation is based on a 365-day year.

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Summary Introduction

To complete: The balance sheet and sales information using the financial data.

Balance Sheet: This is a financial statement which shows the assets, liabilities, and stockholders’ equity of a company at a particular point of time. It reveals the financial health of a company. Thus, this statement is also called as the Statement of Financial position. It helps the users to know about the creditworthiness of a company as to whether the company has enough assets to pay off its liabilities.

Ratio Analysis: Ratio is used to compare two mathematical figures. In case of the ratio analysis of a company, the financial ratios are calculated. The financial ratios examine the performance of the company and it is helpful in comparing companies with same business. It indicates the relationship of two or more parts of financial statements.

Explanation

Working notes:

Compute total sales.

Given,

Total assets turnover is 1.5 times.

Total assets are $300,000.

The formula of total assets turnover is,

Total Assets Turnover=Total SalesTotal Assets

Substitute 1.5 times for total assets turnover and $300,000 for total assets.

1.5 times=Total Sales$300,000Total Sales=$450,000

Thus, total sales are $450,000.

Compute the amount of account receivables.

Given,

Annual sale is $450,000.

Days sales outstanding  are 36.5 days.

The formula to calculate days sales outstanding is,

Days Sales Outstanding=Account ReceivableAnnual Sales365

To calculate account receivables the formula need to be derived as below,

Account Receivables=Days Sales Outstanding×Annual Sales365

Substitute $450,000 for annual sales and 36.5 days for days sales outstanding.

Account Receivables=36.5×$450,000365=$45,000

Thus, accounts receivable is $45,000.

Compute amount of inventory.

Given,

Total sale is $450,000.

Inventory turnover ratio is 5 times.

The formula of total inventory turnover is,

Total Inventory Turnover=Total SalesTotal Inventory 

Substitute 5 times for total inventory turnover and $450,000 for total sales.

5 times=$450,000Total InventoryTotal Inventory=$450,0005Total Inventory=$90,000

Thus, the amount of inventory is $90,000.

Compute amount of fixed assets.

Given,

Total sale is $450,000.

Fixed assets turnover is 3 times.

The formula of fixed assets turnover is,

Fixed Assets Turnover=Total SalesTotal Fixed Assets 

Substitute 3 times for fixed assets turnover and $450,000 for total sales.

3 times=$450,000Total Fixed AssetsTotal Fixed Assets=$450,0003Total Fixed Assets=$150,000

Thus, the amount of fixed assets is $150,000.

Compute the amount of current assets.

Given,

Total asset is $300,000.

Amount of fixed assets is $150,000.

The formula of total assets is,

Total Assets=Current Assets+Fixed Assets

Substitute $300,000 for total assets and $150,000 for fixed assets.

$300,000=Current Assets+$150,000Current Assets=$300,000$150,000Current Assets=$150,000

Thus, the amount of current assets is $150,000

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