Calculate The Following Debt And Coverage Ratios For Pelican Paper And Timberland Forest Inc 1. Debt Ratio 2. Times Interest Earned Ratio

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a. Calculate the following debt and coverage ratios for the two companies. Discuss their financial risk and ability to cover the costs in relation to each other.

(1) Debt ratio

(2) Times interest earned ratio b. Calculate the following profitability ratios for the two companies. Discuss their profitability relative to each other

(1) Operating profit margin

(2) Net profit margin

(3) Return on total assets '

(4) Return on common equity c. In what way has the larger debt of Timberland Forest made it more profitable than Pelican Paper? What are the risks that Timberland's investors undertake when they choose to purchase its stock instead of Pelican's?

Ratio proficiency McDougal Printing, Inc., had sales totaling $40,000,000 in fiscal year 2009. Some ratios for the company are listed below. Use this information to determine the dollar values of various income statement and balance sheet accounts as requested.

Year Ended December 31,2009

Sales $40,000,000

Gross profit margin 80%

Operating profit margin 35%

Net profit margin 8%

Return on total assets 16 %

Return on common equity 20%

Total asset turnover 2

Average collection period 623. days

Calculate values for the following:

a. Gross profits b. Cost of goods sold c. Operating profits d. Operating expenses e. Earnings available for common stockholders f. Total assets g. Total common stock equity h. Accounts receivable

§P2~22 Cross-sectional ratio analysis Use the financial statements on page 93 for Fox Manufacturing Company for the year ended December 31, 2009, along with the industry average ratios at the top of page 94, to:

a. Prepare and interpret a complete ratio analysis of the firm's 2009 operations.

b. Summarize your findings and make recommendations.

Fox Manufacturing Company '

for the Year Ended December 31,2009

Less: Cost of goods sold 460,000

Gross profits $140,000 Less: Operating expenses

General and administrative expenses $30,000

Depreciation expense 30,000

Total operating expense 60,000

Operating profits $ 80,000

Less: Interest expense 10,000

Net profits before taxes $ 70,000

Less: Taxes 27,100 Net profits after taxes (earnings available for common stockholders) $ 42,900

Earnings per share (EPS) $2.15

Fox Manufacturing Company .

| .,■■■.,' 1 ■■■■'; ■■■ '. .■;.■.■..,. Balance Sheet' ''.".'">'i "".'■.

Marketable securities 7,200

Accounts receivable 34,100

Inventories 82,000

Total current assets $138.300

Net fixed assets $270,000

Total assets $408,300

Liabilities and Stockholders' Equity : N^V^/V !■ V.,-"*-'/"i-"""---^"iii""":---:"1ViiV-"-".:

Accounts payable $ 57,000

Notes payable 13,000

Accruals 5,000

Total current liabilities S 75,000

Long-term debt $150,000 Stockholders' equity

Common stock equity (20,000 shares outstanding) $110,200

Retained earnings 73,100

Total stockholders' equity $183,300

Total liabilities and stockholders' equity $408.300

Current ratio Quick ratio Inventory turnover" Average collection period3 Total asset turnover Debt ratio

Times interest earned ratio Gross profit margin Operating profit margin Net profit margin Return on total assets (ROA) Return on common equity (ROE) Earnings per share (EPS)

Industry average, 2009

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