ZELLA & COLLEEN CORP

xlsx

School

Seneca College *

*We aren’t endorsed by this school

Course

750

Subject

Finance

Date

Jan 9, 2024

Type

xlsx

Pages

5

Uploaded by MasterClover12811

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(3 points) Analysing the firms ROE NET PROFIT MARGIN TOTAL ASSETS 5% $100,000,000 Zelle Corp.'s return on equity (ROE) for the year is 22.5%. 1. a). Zelle Corp. had a net profit margin of 5% last year and an equity multiplier of 3.0. If its total assets are $100 million and its sales are $150 million, what is the firm’s return on equity? r every dollar of shareholders' equity, the company generated a return of 22.5 cents in profit.
SALES EQUITY MULTIPLIER $150,000,000 3 1.5 22.5% TOTAL ASSET TURNOVER=SALES/TOTAL ASSETS ROE=Net Profit Margin*Total Asset Turnover*Equity Multiplier
b). Exerpts taken from the Financial Statements of Colleen Corp. for the years ended December 31, 2020 and December 31, 2 2021 2020 Total Current Assets $550,000 $710,000 Quick Assets $300,000 $450,000 Total Assets $920,000 $1,080,000 Total Current Liabilities $383,000 $300,000 Total Debt $790,000 $630,000 EBIT $660,000 $875,000 Interest Expense $40,700 $33,000 Net Income ? ? i). Assuming a corporate tax rate of 30%, what is the Net Income of the company for both years? (2 points) ii). What is the Current Ratio and Acid Test Ratio of the company for both years? (4 points) iii). What is the Return on Assets for the company for both years? (2 points) iv). What is the Debt Ratio of the company for both years? (2 points) v). What is the TIE Ratio of the company for both years? (2 points) vi). Given the ratios calculated above, provide a brief analysis of your findings. (3 points)
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FORMULA YEAR EBIT 2021 $550,000 $300,000 $920,000 $383,000 $790,000 $660,000 $40,700 0.3 2020 $710,000 $450,000 $1,080,000 $300,000 $630,000 $875,000 $33,000 $0.3 FINDINGS INCOME TAX= Corporate tax rate of 30%*(EBI T-Interest Expense) Total current asset QUICK ASSETS TOTAL ASSETS TOTAL LIABILITIE S TOTAL DEBT INTEREST EXPENSE CORPORA TE TAX Net Income : The company's net income decreased in 2021, indicating a drop in Current Ratio and Acid Test Ratio: Both the Current Ratio and Acid Test Ratio de Return on Assets (ROA): The ROA also decreased from 2020 to 2021, indicatin Debt Ratio: The company's Debt Ratio increased significantly from 2020 to 2021 TIE Ratio: The TIE Ratio decreased from 2020 to 2021, indicating a reduced abili
ROA DEBT RATIO TIE RATIO $185,790 $433,510 1.436031 0.78329 47% 128% 16.21622 $252,600 $589,400 2.366667 1.5 55% 86% 26.51515 INCOME= (EBIT- Interest Expense- Income Tax expense) CURRENT RATIO=Cu rrent Asset/Cur rent Liabilities ACID RATIO=Qu ick asset/curr ent liabilities ROA=Net Income/T otal assets DEBT RATIO=Total debt+Total current liabilities) (/Total assets TIE RATIO=EB IT/Interes t Expense INCOME TAX NET INCOME CURRENT RATIO ACID RATIO n profitability. ecreased from 2020 to 2021. This suggests a weakening liquidity position. ng a decrease in the company's ability to generate profit from its assets. 1, suggesting higher reliance on debt for financing. ity to cover interest expenses.

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