Chapter 4, Problem 22P

### Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250

Chapter
Section

### Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250
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 daysaInventory 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.

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, TotalĀ AssetsĀ Turnover=TotalĀ SalesTotalĀ Assets Substitute 1.5 times for total assets turnover and$300,000 for total assets.

1.5Ā times=TotalĀ Sales$300,000TotalĀ Sales=$450,000

Thus, total sales are $450,000. Compute the amount of account receivables. Given, Annual sale is$450,000.

Days sales outstandingĀ  are 36.5 days.

The formula to calculate days sales outstanding is,

DaysĀ SalesĀ Outstanding=AccountĀ ReceivableAnnualĀ Sales365

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

AccountĀ Receivables=DaysĀ SalesĀ OutstandingĆAnnualĀ Sales365

Substitute $450,000 for annual sales and 36.5 days for days sales outstanding. AccountĀ Receivables=36.5Ć$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, TotalĀ InventoryĀ Turnover=TotalĀ SalesTotalĀ InventoryĀ Substitute 5 times for total inventory turnover and$450,000 for total sales.

5Ā times=$450,000TotalĀ InventoryTotalĀ Inventory=$450,0005TotalĀ 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, FixedĀ AssetsĀ Turnover=TotalĀ SalesTotalĀ FixedĀ AssetsĀ Substitute 3 times for fixed assets turnover and$450,000 for total sales.

3Ā times=$450,000TotalĀ FixedĀ AssetsTotalĀ FixedĀ Assets=$450,0003TotalĀ FixedĀ 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,

TotalĀ Assets=CurrentĀ Assets+FixedĀ Assets

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

$300,000=CurrentĀ Assets+$150,000CurrentĀ Assets=$300,000ā$150,000CurrentĀ Assets=$150,000 Thus, the amount of current assets is$150,000

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