Here are simplified financial statements for Phone Corporation in 2020: INCOME STATEMENT (Figures in $ millions) Net sales $ 14,100 Cost of goods sold 4,560 Other expenses 4,217 Depreciation 2,818 Earnings before interest and taxes (EBIT) $ 2,505 Interest expense 735 Income before tax $ 1,770 Taxes (at 21%) 372 Net income $ 1,398 Dividends $ 976 BALANCE SHEET (Figures in $ millions) End of Year Start of Year Assets Cash and marketable securities $ 99 $ 168 Receivables 2,882 2,690 Inventories 237 288 Other current assets 917 982 Total current assets $ 4,135 $ 4,128 Net property, plant, and equipment 20,073 20,015 Other long-term assets 4,316 3,870 Total assets $ 28,524 $ 28,013 Liabilities and shareholders’ equity Payables $ 2,664 $ 3,140 Short-term debt 1,469 1,623 Other current liabilities 861 837 Total current liabilities $ 4,994 $ 5,600 Long-term debt and leases 4,528 5,043 Other long-term liabilities 6,278 6,249 Shareholders’ equity 12,724 11,121 Total liabilities and shareholders’ equity $ 28,524 $ 28,013 Calculate the following financial ratios for Phone Corporation: Note: Use 365 days in a year. Do not round intermediate calculations. Round your final answers to 2 decimal places. Return on equity (use average balance sheet figures) % b. Return on assets (use average balance sheet figures) % c. Return on capital (use average balance sheet figures) %

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Here are simplified financial statements for Phone Corporation in 2020:

INCOME STATEMENT
(Figures in $ millions)
Net sales	$ 14,100
Cost of goods sold	4,560
Other expenses	4,217
Depreciation	2,818
Earnings before interest and taxes (EBIT)	$ 2,505
Interest expense	735
Income before tax	$ 1,770
Taxes (at 21%)	372
Net income	$ 1,398
Dividends	$ 976

BALANCE SHEET
(Figures in $ millions)
	End of Year	Start of Year
Assets
Cash and marketable securities	$ 99	$ 168
Receivables	2,882	2,690
Inventories	237	288
Other current assets	917	982
Total current assets	$ 4,135	$ 4,128
Net property, plant, and equipment	20,073	20,015
Other long-term assets	4,316	3,870
Total assets	$ 28,524	$ 28,013
Liabilities and shareholders’ equity
Payables	$ 2,664	$ 3,140
Short-term debt	1,469	1,623
Other current liabilities	861	837
Total current liabilities	$ 4,994	$ 5,600
Long-term debt and leases	4,528	5,043
Other long-term liabilities	6,278	6,249
Shareholders’ equity	12,724	11,121
Total liabilities and shareholders’ equity	$ 28,524	$ 28,013

Calculate the following financial ratios for Phone Corporation:

Note: Use 365 days in a year. Do not round intermediate calculations. Round your final answers to 2 decimal places.

Return on equity (use average balance sheet figures)		%
b. Return on assets (use average balance sheet figures)		%
c. Return on capital (use average balance sheet figures)		%
d. Days in inventory (use start-of-year balance sheet figures)
e. Inventory turnover (use start-of-year balance sheet figures)
f. Average collection period (use start-of-year balance sheet figures)		days
g. Operating profit margin		%
h. Long-term debt ratio (use end-of-year balance sheet figures)
i. Total debt ratio (use end-of-year balance sheet figures)
j. Times interest earned
k. Cash coverage ratio
l. Current ratio (use end-of-year balance sheet figures)
m. Quick ratio (use end-of-year balance sheet figures)

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

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