1. to create a common size balance sheet, we divide each of the

 

 

The more days that it takes the firm to collect on its receivables, the more efficient the firm is.

 

 

4. Which one of the following is a criticism of equating the goals of maximizing the ROE of a firm and maximizing the firm’s shareholder wealth?

 

ROE is based on after-tax earnings, not cash flows.

 

ROE does not consider risk.

 

ROE ignores the size of the initial investment as well as future cash flows.

 

All of these are criticisms of ROE as a goal.


5.  Efficiency ratio: Jet, Inc., has net sales of $712,478 and accounts receivables of $167,435. What are the firm’s accounts receivables turnover and days’s sales outstanding?

0.24 times;     78.5 days

 

 

4.26 times;     85.7 days

 

5.2 times;     61.3 days

 

 

 

6. The following are the financial statements for Nederland Consumer Products Company for the fiscal year ended September 30, 2011.

 

Nederland Consumer Products Company
Income Statement for the Fiscal Year
Ended September 30, 2011

Net sales

 

$

63,291

Cost of goods sold

 

 

30,612

Gross margin

 

$

32,679

Marketing, research, administrative exp.

 

 

14,139

Depreciation

 

 

939

Operating income(loss)

 

 $

17,601

Interest expense

 

  

483

Earnings(loss) before income taxes

 

 $

17,118

Income taxes

 

 

5,280

Net earnings(loss)

 

$

11,838

 

Nederland Consumer Products Company
Balance Sheet as of September 30, 2011

Assets:

 

Liabilities and Stockholder’s Equity:

Cash and marketable securities

 

$

4,517

 

Accounts payable

 

$

3,547

Investment securities

 

 

440

 

Accrued and other liabilities

 

 

9,422

Accounts receivable

 

 

4,256

 

Taxes payable

 

 

2,228

Total inventories

 

 

5,388

 

Debt due within one year

 

 

6,366

Deferred income taxes

 

 

790

 

 

 

 

 

Prepaid expenses & other receivables

 

 

1,566

 

 

 

 

 

    Total current assets

 

$

16,957

 

    Total current liabilities

 

$

21,563

Property, plant, and equip., at cost

 

 

30,314

 

Long-term debt

 

 

12,314

Less: Accumulated depreciation

 

 

8,505

 

Deferred income taxes

 

 

1,831

Net plant and equipment

 

$

21,809

 

Other non-current liabilities

 

 

3,445

Net goodwill & other intangible assets

 

 

28,458

 

    Total liabilities

 

$

39,153

Other non-current assets

 

 

2,239

 

Convertible Class A preferred stock

 

 

1,343

 

 

 

 

 

Common stock

 

 

1,997

 

 

 

 

 

Retained earnings

 

 

26,970

 

 

 

 

 

Total stockholders’ equity (deficit)

 

$

30,310

Total assets

 

$

69,463

 

Total liabilities and stockholders’ equity

 

$

69,463


Calculate all the ratios, for which industry figures are available below, for Nederland and compare the firm’s ratios with the industry ratios. (Round current ratio, quick ratio, debt ratio, long term debt ratio answers to 2 decimal places, e.g. 12.25 and other answers to 1 decimal place, e.g.12.5 or 12.5%.)

   

 

 

 

 

Current Ratio

 

 

 

 

 

 times

Quick Ratio

 

 

 

 

 

 times

Gross margin

 

 

 

 

 

%

Net profit margin

 

 

 

 

 

%

Debt ratio

 

 

 

 

 

 times

Long-term debt to equity

 

 

 

 

 

 times

Interest coverage

 

 

 

 

 

 

ROA

 

 

 

 

 

%

ROE

 

 

 

 

 

%

 

 

 

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