FIN 3000 Study Guide - Midterm Guide: Inventory Turnover, Asset Turnover, Reserve Requirement

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scarletsnail973

14 Nov 2017

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Weighted average cost of capital aka hurdle return. After tax interest rate paid on debt = (1- corporate tax rate) x interest rate. Operating cycle= inventory days + accounts receivable days. Fraction of a year= operating cycle / 365 (lt debt/ lt debt + equity) % * (1- corporate tax rate%) * Interest rate% + ([equity]1- (lt debt/lt debt+ equity) % * Fraction of year for a/p days= a|p/ cogs *365. Operating profits= net profits + after tax interest payments. Market capitalization= total market value of equity (share price) * number of shares outstanding. Market value added= market value of equity book value of equity. Market-to-book ratio= market value of equity/ book value of equity. After-tax operating income = net income + interest (1 tax rate) After tax interest payments= (1- corporate tax rate) * a/p days. Long-term debt ratio = long-term debt/ (ltd + equity) Long term debt-equity ratio= long term debt/ equity.

Related Questions

1.) Personal After-Tax

Corporate bonds issued by Johnson Corporation currently yield 8%. Municipal bonds of equal risk currently yield 6%. At what tax rate would an investor be indifferent between these two bonds?

2) Balance Sheet Analysis

Complete the balance sheet and sales information in the table that follows for J. White Industries using the following financial data:

Total assets turnover: 1.5

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

Total liabilities-to-assets ratio: 40%

Quick ratio: 0.80

Days sales outstanding (based on 365-day year): 36.5 days

Inventory turnover ratio: 3.75

Partial Income Statement

Information

Sales __________

Cost of goods sold __________

Balance Sheet

Cash __________ Accounts payable ___________

Accounts receivable __________ Long-term debt 50,000

Inventories __________ Common Stock ___________

Fixed Assets __________ Retained earnings ___________

Total Assets $400,000 Total liabilities and equity __________

lilacwater-buffalo717

1.Use financial statements that are in the attached document to calculate the financial ratios presented.
2. Prepare and interpret an analysis of the financial ratios showing the company.
3. Summarize the findings and make recommendations.
4. Du Pont method is used to determine the return on equity. This result tells us?

Zumba Production Inc.

Income Statement

Year Ended December 31,2017

Sales		$160,000
Cost of Goods Solds:
Merchandise Inventory, Jan 1,2013	$208,400
Purchases (net)	37,320
Goods Available for Sale	$171,080
Merchandise Inventory, Dec. 31, 2013	65,080
Cost of Goods Sold		106,000
Gross Profit		$54,000
Operating Expenses		37,000
Income from Operations		$17,000
Other Income and Expense:
Interest Expense		6,1000
Income before Tax		$10,900
Income Tax Expense		4,360

Net Income		$6,540

Zumba Production Inc.

Balance Sheet

Year Ended December 31, 2017

Cash		$500
Marketable Securities		1,000
Accounts Receivable		25,000
Merchandise Inventory		45,500
Property, Plant, and Equipment (net)		60,000
Furniture and Fixtures		18,000

Total Assets		$150,000

Accounts Payable		$22,000
Notes Payable		40,000
Accrued Salaries Payable		7,000
Long-Term Debt		22,950
Common Stock ($10-par)		31,500
Retained Earnings		26,550

Total Liabilities and Stockholders Equity		$150,000

The following financial ratios are presented according to the market where it competes Zumba Production Inc.

Ratio	Market	Zumba Production
a. Current ratio	1.80
b. Quick ratio	0.70
c. Inventory turnover *	2.50
d. Average collection period *	37.5 days
e. Debt ratio	65%
f. Times interest earned ratio	3.80
g. Gross profit margin	38%
h. Net profit margin	3.50%
i. Return on total sales	4.00%
j. Return on common equity	9.50%
k. Market/ Book ratio	1.10
l. Working Capital	$5,000

*Based on 365 days a year

skyfrog487

E13-5 Matching Each Ratio with Its Computational Formula LO 13-4, 13-5, 13-6, 13-7

Match each definition with its related ratios or percentages by selecting the appropriate letter in the drop down provided.

Definitions:			Ratios or Percentages	Definitions
A.	Net Income (before extraordinary items) Ã· Net Sales	1	Profit margin
B.	Days in Year Ã· Receivable Turnover ratio	2	Inventory turnover ratio
C.	Net Income Ã· Average Stockholdersâ Equity	3	Average collection period
D.	Net Income Ã· Average Number of Shares of Common Stock Outstanding	4	Dividend yield ratio
E.	Return on Equity â Return on Assets	5	Return on equity
F.	Quick Assets Ã· Current Liabilities	6	Current ratio
G.	Current Assets Ã· Current Liabilities	7	Debt-to-equity ratio
H.	Cost of Goods Sold Ã· Average Inventory	8	Price/earnings ratio
I.	Net Credit Sales Ã· Average Net Receivables	9	Financial leverage percentage	E
J.	Days in Year Ã· Inventory Turnover Ratio	10	Receivable turnover ratio
K.	Total Liabilities Ã· Stockholdersâ Equity	11	Average daysâ supply of inventory
L.	Dividends per Share Ã· Market Price per Share	12	Earnings per share
M.	Market Price per Share Ã· Earnings per Share	13	Return on assets
N.	[Net Income + Interest Expense (net of tax)] Ã· Average Total Assets	14	Quick ratio
O.	Cash from Operating Activities (before interest and taxes) Ã· Interest Paid	15	Times interest earned
P.	Net Sales Revenue Ã· Net Fixed Assets	16	Cash coverage ratio
Q.	(Net Income + Interest Expense + Income Tax Expense) Ã· Interest Expense	17	Fixed asset turnover ratio

blackgerbil844

FIN 3000 Study Guide - Midterm Guide: Inventory Turnover, Asset Turnover, Reserve Requirement

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