Answered: loyd Inc. has sales of $650,000, a net…

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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loyd Inc. has sales of $650,000, a net income of $39,000, and the following balance sheet:

Cash	$	119,600	Accounts payable	$	92,560
Receivables		132,080	Notes payable to bank		46,800
Inventories		436,800	Total current liabilities	$	139,360
Total current assets	$	688,480	Long-term debt		167,440
Net fixed assets		351,520	Common equity		733,200
Total assets	$	1,040,000	Total liabilities and equity	$	1,040,000

The new owner thinks that inventories are excessive and can be lowered to the point where the current ratio is equal to the industry average, 2.25×, without affecting sales or net income. If inventories are sold and not replaced (thus reducing the current ratio to 2.25×), if the funds generated are used to reduce common equity (stock can be repurchased at book value), and if no other changes occur, by how much will the ROE change? Do not round intermediate calculations. Round your answer to two decimal places.

ROE will by percentage points.

What will be the firm's new quick ratio? Do not round intermediate calculations. Round your answer to two decimal places.

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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