Consider the following financial data for Smith Corp.: Balance Sheet as of December 31, 2019 Cash $ 195,000 Accounts payable $ 94,000 Receivables 185,500 Short-term bank note 119,500 Inventories 214,500 Accruals 71,000 Total current assets $ 595,000 Total current liabilities $ 284,500 Long-term debt 462,500 Net plant & equip. 621,500 Common equity 469,500 Total assets $ 1,216,500 Total liab. & equity $ 1,216,500 Profit & Loss Statement for 2019 Industry Average Ratios Net sales $ 1,265,000 Current ratio 1.9× Cost of sales 986,500 Quick ratio 1.2× Gross profit $ 278,500 Days sales outstanding 64 days Operating expenses 166,500 Inventory turnover 3.3× EBIT $ 112,000 Total asset turnover 0.7× Interest expense 32,000 Net profit margin 9.1% Pre-tax income $ 80,000 Return on assets 6.8% Income taxes (30%) 24,000 Return on equity 15.2% Net income $ 56,000 Debt-to-capital ratio 41% Compared to its competitors, Smith... a. obtains more of its capital from equity financing. b. converts its receivables to cash more slowly. c. is more likely to have trouble paying its short-term debts. d. has a higher return on equity. e. is using its total assets to generate sales more efficiently.
Consider the following financial data for Smith Corp.: Balance Sheet as of December 31, 2019 Cash $ 195,000 Accounts payable $ 94,000 Receivables 185,500 Short-term bank note 119,500 Inventories 214,500 Accruals 71,000 Total current assets $ 595,000 Total current liabilities $ 284,500 Long-term debt 462,500 Net plant & equip. 621,500 Common equity 469,500 Total assets $ 1,216,500 Total liab. & equity $ 1,216,500 Profit & Loss Statement for 2019 Industry Average Ratios Net sales $ 1,265,000 Current ratio 1.9× Cost of sales 986,500 Quick ratio 1.2× Gross profit $ 278,500 Days sales outstanding 64 days Operating expenses 166,500 Inventory turnover 3.3× EBIT $ 112,000 Total asset turnover 0.7× Interest expense 32,000 Net profit margin 9.1% Pre-tax income $ 80,000 Return on assets 6.8% Income taxes (30%) 24,000 Return on equity 15.2% Net income $ 56,000 Debt-to-capital ratio 41% Compared to its competitors, Smith... a. obtains more of its capital from equity financing. b. converts its receivables to cash more slowly. c. is more likely to have trouble paying its short-term debts. d. has a higher return on equity. e. is using its total assets to generate sales more efficiently.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Consider the following financial data for Smith Corp.:
Balance Sheet as of December 31, 2019Cash $195,000Accounts payable $ 94,000Receivables 185,500Short-term bank note 119,500Inventories 214,500Accruals 71,000Total current assets $595,000Total current liabilities $ 284,500Long-term debt 462,500Net plant & equip. 621,500Common equity 469,500Total assets $1,216,500Total liab. & equity $ 1,216,500Profit & Loss Statement for 2019Industry Average RatiosNet sales $1,265,000Current ratio 1.9×Cost of sales 986,500Quick ratio 1.2×Gross profit $278,500Days sales outstanding 64 daysOperating expenses 166,500Inventory turnover 3.3×EBIT $112,000Total asset turnover 0.7×Interest expense 32,000Net profit margin 9.1%Pre-tax income $80,000Return on assets 6.8%Income taxes (30%) 24,000Return on equity 15.2%Net income $56,000Debt-to-capital ratio 41%
Compared to its competitors, Smith...a. obtains more of its capital from equity financing.
b. converts its receivables to cash more slowly.
c. is more likely to have trouble paying its short-term debts.
d. has a higher return on equity.
e. is using its total assets to generate sales more efficiently.
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