AFM101 Study Guide - Midterm Guide: Cash Flow Statement, Cash Cash, Retained Earnings
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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 firmâs 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 firmâs 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 firmâs performance and how they combine to form the firmâs return on equity. | ||
| c. | The financial data for the firmâs 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. | ||
