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FSU Manufacturing, Inc. has the following financial statements data for 2014:

Income Statement

Balance Sheet

Sales

$102,500

Cash

$40,000

Cost of Goods

$50,000

Fixed Assets

$55,000

SG&E Expenses

$35,000

Total Assets

$95,000

EBIT

$17,500

Accounts Payable

$12,000

Interest Expense

$2,500

Long-term Debt

$25,000

Taxes

$6,000

Retained Earnings

$28,000

Net Income

$9,000

Paid-in Common Equity

$30,000

Trait 1

Use of financial statements

1.

a.

Compute the firm’s debt ratio and current ratio.

b.

Is the firm profitable? Does the balance sheet balance? Explain.

c.

If the firm paid $5,000 in dividends in 2014, what was its retained earnings balance at the end of 2013? (20 points)

Trait 2

Student relates financial ratios to improved business decisions

2.

a.

Compute the firm’s net profit margin, total asset turnover, and financial leverage multiplier (also known as the equity multiplier).

b.

Explain what each of the three ratios above tells you about the firm’s performance and how they combine to form the firm’s return on equity.

c.

The financial data for the firm’s major competitors show on average a net profit margin of 16%, total asset turnover of 1.25, but comparable leverage. Identify some possible business decisions that the firm could make so that it would be as attractive an investment as its competitors.

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Hubert Koch
Hubert KochLv2
28 Sep 2019

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