Return on equity (ROE)

Question

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Answer 1

Question

Chapter 4, Problem 7QP

a.

Summary Introduction

To compute: Return on equity (ROE)

a.

Expert Solution

Explanation of Solution

The formula to calculate return on equity is as follows:

$Return on equity=Net income(shareholders equity at the end of the year+share holders equity at thestart of the year2)$

The calculation of return on equity is as follows:

$Return on equity =1223(9724+91212)=0.129796=13%$

Hence, the ROE is 13%

b.

Summary Introduction

To compute: Return on assets (ROA)

b.

Expert Solution

Explanation of Solution

The formula to calculate return on asset is as follows:

$Return on asset=Net income+Interest expense(1−Tax rate)(Total assets at the start of the year+Total assets at the end of the year2)$

The calculation of return on capital is as follows:

$Return on assets=1,223+685×(1−.35)(27,714+27,5032)=0.0604=6.04%$

Hence, the ROA is 6.04%

c.

Summary Introduction

To compute: Return on capital (ROC)

c.

Expert Solution

Explanation of Solution

The formula to calculate return on capital is as follows:

$Return on capital=Net income+Interest expense×(1−Tax rate)([Long term debt and leases at the start of the year +shareholders equity at the end of the year]+[Long term debt and leases at the end of theyear+shareholders equity at the end of theyear]2)$

The calculation of return on equity is as follows:

$Return on capital=1,223+685×(1−.35)[(7,018+9,724)+(6,833+9,121)]2=0.1020=10.20%$

Hence, the ROC is 10.20%

d.

Summary Introduction

To compute: Days in inventory.

d.

Expert Solution

Explanation of Solution

The formula to calculate days in inventory is as follows:

$Days in inventory=Inventory in the start of the year(Cost of goods sold365)$

.

The calculation of days in inventory is as follows:

$Days in inventory==238(4,060365)=21.40 days$

Hence, the days in inventory is 21.40 days

e.

Summary Introduction

To compute: Inventory turn over

e.

Expert Solution

Explanation of Solution

The formula to calculate inventory turnover is as follows:

$Inventory turnover=Cost of goods soldInventory at start of year$

The calculation of inventory turnover is as follows:

$Inventory turnover==4,060(187+238)2=19.11$

Hence, the inventory turnover is 19.11

f.

Summary Introduction

To compute: Average collection period(ACP)

f.

Expert Solution

Explanation of Solution

The formula to calculate average collection period is as follows:

$Average collection period =Receivables at start of yearAverage daily sales$

The calculation of average collection period is as follows:

$Average collection period=2,490(13,193365)=68.89 days$

Hence, the ACP is 68.89 days.

g.

Summary Introduction

To compute: Operating profit margin (OPM)

g.

Expert Solution

Explanation of Solution

The formula to calculate operating profit margin is as follows:

$Operating profit margin==Net income + After-tax interestSales$

The calculation of operating profit margin is as follows:

$Operating profit margin=1,223+685×(1−.35)13,193=0.1264=12.64%$

Hence, the OPM is 12.64%

h.

Summary Introduction

To compute: Long term debt ratio

h.

Expert Solution

Explanation of Solution

The formula to calculate operating profit margin is as follows:

$Long term debt ratio=Long term debt and leases at the end of the year(long term debt and leases at the end of the year +shareholders equity at the end of the year)$

The calculation of long term debt ratio is as follows:

$Long-term debt ratio=7,0187,018+9,724=0.42$

Hence the long term debt ratio is 0.42

i.

Summary Introduction

To compute: Total debt ratio

i.

Expert Solution

Explanation of Solution

The formula to calculate total debt ratio is as follows:

$Total debt ratio=(Total current liabilities at the end of the year+Long term debt and leases at the end of the year+Other long term liabilities at the end of the yearTotal assets at the end of the year)$

The calculation of total debt ratio is as follows:

$Total debt ratio=4,794+7,018+6,17827,714=0.65$

Hence the total debt ratio is 0.65

j.

Summary Introduction

To compute: Times interest earned

j.

Expert Solution

Explanation of Solution

The formula to calculate times interest earned is as follows:

$Times interest earned=EBITInterest expense$

The calculation of times interest earned is as follows:

$Times interest earned=2,566685=3.75$

Hence the time interest earned is 3.75

k.

Summary Introduction

To compute: Cash coverage ratio

k.

Expert Solution

Explanation of Solution

The formula to calculate cash coverage ratio is as follows:

$Cash coverage ratio=(EBIT+Depreciation)Interest expense$

The calculation of cash coverage ratio is as follows:

$Cash coverage ratio==2,566+2,518685=7.42$

Hence the cash coverage ratio is 7.42

l.

Summary Introduction

To compute: Current ratio

l.

Expert Solution

Explanation of Solution

The formula to calculate current ratio is as follows:

$Current ratio=Current assetsCurrent liabilities$

The calculation of current ratio is as follows:

$Current ratio=3,5254,794=0.74$

Hence the current ratio is 0.74

m.

Summary Introduction

To compute: Quick ratio

m.

Expert Solution

Explanation of Solution

The formula to calculate quick ratio is as follows:

$Quick ratio=Cash + Marketable securities + ReceivablesCurrent liabilities$

The calculation of quick ratio is as follows:

$Quick ratio=89+2,3824,794=0.52$

Hence the quick ratio is 0.52

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Answer 2

Question

Chapter 4, Problem 7QP

a.

Summary Introduction

To compute: Return on equity (ROE)

a.

Expert Solution

Explanation of Solution

The formula to calculate return on equity is as follows:

$Return on equity=Net income(shareholders equity at the end of the year+share holders equity at thestart of the year2)$

The calculation of return on equity is as follows:

$Return on equity =1223(9724+91212)=0.129796=13%$

Hence, the ROE is 13%

b.

Summary Introduction

To compute: Return on assets (ROA)

b.

Expert Solution

Explanation of Solution

The formula to calculate return on asset is as follows:

$Return on asset=Net income+Interest expense(1−Tax rate)(Total assets at the start of the year+Total assets at the end of the year2)$

The calculation of return on capital is as follows:

$Return on assets=1,223+685×(1−.35)(27,714+27,5032)=0.0604=6.04%$

Hence, the ROA is 6.04%

c.

Summary Introduction

To compute: Return on capital (ROC)

c.

Expert Solution

Explanation of Solution

The formula to calculate return on capital is as follows:

$Return on capital=Net income+Interest expense×(1−Tax rate)([Long term debt and leases at the start of the year +shareholders equity at the end of the year]+[Long term debt and leases at the end of theyear+shareholders equity at the end of theyear]2)$

The calculation of return on equity is as follows:

$Return on capital=1,223+685×(1−.35)[(7,018+9,724)+(6,833+9,121)]2=0.1020=10.20%$

Hence, the ROC is 10.20%

d.

Summary Introduction

To compute: Days in inventory.

d.

Expert Solution

Explanation of Solution

The formula to calculate days in inventory is as follows:

$Days in inventory=Inventory in the start of the year(Cost of goods sold365)$

.

The calculation of days in inventory is as follows:

$Days in inventory==238(4,060365)=21.40 days$

Hence, the days in inventory is 21.40 days

e.

Summary Introduction

To compute: Inventory turn over

e.

Expert Solution

Explanation of Solution

The formula to calculate inventory turnover is as follows:

$Inventory turnover=Cost of goods soldInventory at start of year$

The calculation of inventory turnover is as follows:

$Inventory turnover==4,060(187+238)2=19.11$

Hence, the inventory turnover is 19.11

f.

Summary Introduction

To compute: Average collection period(ACP)

f.

Expert Solution

Explanation of Solution

The formula to calculate average collection period is as follows:

$Average collection period =Receivables at start of yearAverage daily sales$

The calculation of average collection period is as follows:

$Average collection period=2,490(13,193365)=68.89 days$

Hence, the ACP is 68.89 days.

g.

Summary Introduction

To compute: Operating profit margin (OPM)

g.

Expert Solution

Explanation of Solution

The formula to calculate operating profit margin is as follows:

$Operating profit margin==Net income + After-tax interestSales$

The calculation of operating profit margin is as follows:

$Operating profit margin=1,223+685×(1−.35)13,193=0.1264=12.64%$

Hence, the OPM is 12.64%

h.

Summary Introduction

To compute: Long term debt ratio

h.

Expert Solution

Explanation of Solution

The formula to calculate operating profit margin is as follows:

$Long term debt ratio=Long term debt and leases at the end of the year(long term debt and leases at the end of the year +shareholders equity at the end of the year)$

The calculation of long term debt ratio is as follows:

$Long-term debt ratio=7,0187,018+9,724=0.42$

Hence the long term debt ratio is 0.42

i.

Summary Introduction

To compute: Total debt ratio

i.

Expert Solution

Explanation of Solution

The formula to calculate total debt ratio is as follows:

$Total debt ratio=(Total current liabilities at the end of the year+Long term debt and leases at the end of the year+Other long term liabilities at the end of the yearTotal assets at the end of the year)$

The calculation of total debt ratio is as follows:

$Total debt ratio=4,794+7,018+6,17827,714=0.65$

Hence the total debt ratio is 0.65

j.

Summary Introduction

To compute: Times interest earned

j.

Expert Solution

Explanation of Solution

The formula to calculate times interest earned is as follows:

$Times interest earned=EBITInterest expense$

The calculation of times interest earned is as follows:

$Times interest earned=2,566685=3.75$

Hence the time interest earned is 3.75

k.

Summary Introduction

To compute: Cash coverage ratio

k.

Expert Solution

Explanation of Solution

The formula to calculate cash coverage ratio is as follows:

$Cash coverage ratio=(EBIT+Depreciation)Interest expense$

The calculation of cash coverage ratio is as follows:

$Cash coverage ratio==2,566+2,518685=7.42$

Hence the cash coverage ratio is 7.42

l.

Summary Introduction

To compute: Current ratio

l.

Expert Solution

Explanation of Solution

The formula to calculate current ratio is as follows:

$Current ratio=Current assetsCurrent liabilities$

The calculation of current ratio is as follows:

$Current ratio=3,5254,794=0.74$

Hence the current ratio is 0.74

m.

Summary Introduction

To compute: Quick ratio

m.

Expert Solution

Explanation of Solution

The formula to calculate quick ratio is as follows:

$Quick ratio=Cash + Marketable securities + ReceivablesCurrent liabilities$

The calculation of quick ratio is as follows:

$Quick ratio=89+2,3824,794=0.52$

Hence the quick ratio is 0.52

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Answer 3

Question

Chapter 4, Problem 7QP

a.

Summary Introduction

To compute: Return on equity (ROE)

a.

Expert Solution

Explanation of Solution

The formula to calculate return on equity is as follows:

$Return on equity=Net income(shareholders equity at the end of the year+share holders equity at thestart of the year2)$

The calculation of return on equity is as follows:

$Return on equity =1223(9724+91212)=0.129796=13%$

Hence, the ROE is 13%

b.

Summary Introduction

To compute: Return on assets (ROA)

b.

Expert Solution

Explanation of Solution

The formula to calculate return on asset is as follows:

$Return on asset=Net income+Interest expense(1−Tax rate)(Total assets at the start of the year+Total assets at the end of the year2)$

The calculation of return on capital is as follows:

$Return on assets=1,223+685×(1−.35)(27,714+27,5032)=0.0604=6.04%$

Hence, the ROA is 6.04%

c.

Summary Introduction

To compute: Return on capital (ROC)

c.

Expert Solution

Explanation of Solution

The formula to calculate return on capital is as follows:

$Return on capital=Net income+Interest expense×(1−Tax rate)([Long term debt and leases at the start of the year +shareholders equity at the end of the year]+[Long term debt and leases at the end of theyear+shareholders equity at the end of theyear]2)$

The calculation of return on equity is as follows:

$Return on capital=1,223+685×(1−.35)[(7,018+9,724)+(6,833+9,121)]2=0.1020=10.20%$

Hence, the ROC is 10.20%

d.

Summary Introduction

To compute: Days in inventory.

d.

Expert Solution

Explanation of Solution

The formula to calculate days in inventory is as follows:

$Days in inventory=Inventory in the start of the year(Cost of goods sold365)$

.

The calculation of days in inventory is as follows:

$Days in inventory==238(4,060365)=21.40 days$

Hence, the days in inventory is 21.40 days

e.

Summary Introduction

To compute: Inventory turn over

e.

Expert Solution

Explanation of Solution

The formula to calculate inventory turnover is as follows:

$Inventory turnover=Cost of goods soldInventory at start of year$

The calculation of inventory turnover is as follows:

$Inventory turnover==4,060(187+238)2=19.11$

Hence, the inventory turnover is 19.11

f.

Summary Introduction

To compute: Average collection period(ACP)

f.

Expert Solution

Explanation of Solution

The formula to calculate average collection period is as follows:

$Average collection period =Receivables at start of yearAverage daily sales$

The calculation of average collection period is as follows:

$Average collection period=2,490(13,193365)=68.89 days$

Hence, the ACP is 68.89 days.

g.

Summary Introduction

To compute: Operating profit margin (OPM)

g.

Expert Solution

Explanation of Solution

The formula to calculate operating profit margin is as follows:

$Operating profit margin==Net income + After-tax interestSales$

The calculation of operating profit margin is as follows:

$Operating profit margin=1,223+685×(1−.35)13,193=0.1264=12.64%$

Hence, the OPM is 12.64%

h.

Summary Introduction

To compute: Long term debt ratio

h.

Expert Solution

Explanation of Solution

The formula to calculate operating profit margin is as follows:

$Long term debt ratio=Long term debt and leases at the end of the year(long term debt and leases at the end of the year +shareholders equity at the end of the year)$

The calculation of long term debt ratio is as follows:

$Long-term debt ratio=7,0187,018+9,724=0.42$

Hence the long term debt ratio is 0.42

i.

Summary Introduction

To compute: Total debt ratio

i.

Expert Solution

Explanation of Solution

The formula to calculate total debt ratio is as follows:

$Total debt ratio=(Total current liabilities at the end of the year+Long term debt and leases at the end of the year+Other long term liabilities at the end of the yearTotal assets at the end of the year)$

The calculation of total debt ratio is as follows:

$Total debt ratio=4,794+7,018+6,17827,714=0.65$

Hence the total debt ratio is 0.65

j.

Summary Introduction

To compute: Times interest earned

j.

Expert Solution

Explanation of Solution

The formula to calculate times interest earned is as follows:

$Times interest earned=EBITInterest expense$

The calculation of times interest earned is as follows:

$Times interest earned=2,566685=3.75$

Hence the time interest earned is 3.75

k.

Summary Introduction

To compute: Cash coverage ratio

k.

Expert Solution

Explanation of Solution

The formula to calculate cash coverage ratio is as follows:

$Cash coverage ratio=(EBIT+Depreciation)Interest expense$

The calculation of cash coverage ratio is as follows:

$Cash coverage ratio==2,566+2,518685=7.42$

Hence the cash coverage ratio is 7.42

l.

Summary Introduction

To compute: Current ratio

l.

Expert Solution

Explanation of Solution

The formula to calculate current ratio is as follows:

$Current ratio=Current assetsCurrent liabilities$

The calculation of current ratio is as follows:

$Current ratio=3,5254,794=0.74$

Hence the current ratio is 0.74

m.

Summary Introduction

To compute: Quick ratio

m.

Expert Solution

Explanation of Solution

The formula to calculate quick ratio is as follows:

$Quick ratio=Cash + Marketable securities + ReceivablesCurrent liabilities$

The calculation of quick ratio is as follows:

$Quick ratio=89+2,3824,794=0.52$

Hence the quick ratio is 0.52

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Answer 4

Question

Chapter 4, Problem 7QP

a.

Summary Introduction

To compute: Return on equity (ROE)

a.

Expert Solution

Explanation of Solution

The formula to calculate return on equity is as follows:

$Return on equity=Net income(shareholders equity at the end of the year+share holders equity at thestart of the year2)$

The calculation of return on equity is as follows:

$Return on equity =1223(9724+91212)=0.129796=13%$

Hence, the ROE is 13%

b.

Summary Introduction

To compute: Return on assets (ROA)

b.

Expert Solution

Explanation of Solution

The formula to calculate return on asset is as follows:

$Return on asset=Net income+Interest expense(1−Tax rate)(Total assets at the start of the year+Total assets at the end of the year2)$

The calculation of return on capital is as follows:

$Return on assets=1,223+685×(1−.35)(27,714+27,5032)=0.0604=6.04%$

Hence, the ROA is 6.04%

c.

Summary Introduction

To compute: Return on capital (ROC)

c.

Expert Solution

Explanation of Solution

The formula to calculate return on capital is as follows:

$Return on capital=Net income+Interest expense×(1−Tax rate)([Long term debt and leases at the start of the year +shareholders equity at the end of the year]+[Long term debt and leases at the end of theyear+shareholders equity at the end of theyear]2)$

The calculation of return on equity is as follows:

$Return on capital=1,223+685×(1−.35)[(7,018+9,724)+(6,833+9,121)]2=0.1020=10.20%$

Hence, the ROC is 10.20%

d.

Summary Introduction

To compute: Days in inventory.

d.

Expert Solution

Explanation of Solution

The formula to calculate days in inventory is as follows:

$Days in inventory=Inventory in the start of the year(Cost of goods sold365)$

.

The calculation of days in inventory is as follows:

$Days in inventory==238(4,060365)=21.40 days$

Hence, the days in inventory is 21.40 days

e.

Summary Introduction

To compute: Inventory turn over

e.

Expert Solution

Explanation of Solution

The formula to calculate inventory turnover is as follows:

$Inventory turnover=Cost of goods soldInventory at start of year$

The calculation of inventory turnover is as follows:

$Inventory turnover==4,060(187+238)2=19.11$

Hence, the inventory turnover is 19.11

f.

Summary Introduction

To compute: Average collection period(ACP)

f.

Expert Solution

Explanation of Solution

The formula to calculate average collection period is as follows:

$Average collection period =Receivables at start of yearAverage daily sales$

The calculation of average collection period is as follows:

$Average collection period=2,490(13,193365)=68.89 days$

Hence, the ACP is 68.89 days.

g.

Summary Introduction

To compute: Operating profit margin (OPM)

g.

Expert Solution

Explanation of Solution

The formula to calculate operating profit margin is as follows:

$Operating profit margin==Net income + After-tax interestSales$

The calculation of operating profit margin is as follows:

$Operating profit margin=1,223+685×(1−.35)13,193=0.1264=12.64%$

Hence, the OPM is 12.64%

h.

Summary Introduction

To compute: Long term debt ratio

h.

Expert Solution

Explanation of Solution

The formula to calculate operating profit margin is as follows:

$Long term debt ratio=Long term debt and leases at the end of the year(long term debt and leases at the end of the year +shareholders equity at the end of the year)$

The calculation of long term debt ratio is as follows:

$Long-term debt ratio=7,0187,018+9,724=0.42$

Hence the long term debt ratio is 0.42

i.

Summary Introduction

To compute: Total debt ratio

i.

Expert Solution

Explanation of Solution

The formula to calculate total debt ratio is as follows:

$Total debt ratio=(Total current liabilities at the end of the year+Long term debt and leases at the end of the year+Other long term liabilities at the end of the yearTotal assets at the end of the year)$

The calculation of total debt ratio is as follows:

$Total debt ratio=4,794+7,018+6,17827,714=0.65$

Hence the total debt ratio is 0.65

j.

Summary Introduction

To compute: Times interest earned

j.

Expert Solution

Explanation of Solution

The formula to calculate times interest earned is as follows:

$Times interest earned=EBITInterest expense$

The calculation of times interest earned is as follows:

$Times interest earned=2,566685=3.75$

Hence the time interest earned is 3.75

k.

Summary Introduction

To compute: Cash coverage ratio

k.

Expert Solution

Explanation of Solution

The formula to calculate cash coverage ratio is as follows:

$Cash coverage ratio=(EBIT+Depreciation)Interest expense$

The calculation of cash coverage ratio is as follows:

$Cash coverage ratio==2,566+2,518685=7.42$

Hence the cash coverage ratio is 7.42

l.

Summary Introduction

To compute: Current ratio

l.

Expert Solution

Explanation of Solution

The formula to calculate current ratio is as follows:

$Current ratio=Current assetsCurrent liabilities$

The calculation of current ratio is as follows:

$Current ratio=3,5254,794=0.74$

Hence the current ratio is 0.74

m.

Summary Introduction

To compute: Quick ratio

m.

Expert Solution

Explanation of Solution

The formula to calculate quick ratio is as follows:

$Quick ratio=Cash + Marketable securities + ReceivablesCurrent liabilities$

The calculation of quick ratio is as follows:

$Quick ratio=89+2,3824,794=0.52$

Hence the quick ratio is 0.52

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Answer 5

Chapter 4, Problem 7QP

a.

Summary Introduction

To compute: Return on equity (ROE)

a.

Expert Solution

Explanation of Solution

The formula to calculate return on equity is as follows:

$Return on equity=Net income(shareholders equity at the end of the year+share holders equity at thestart of the year2)$

The calculation of return on equity is as follows:

$Return on equity =1223(9724+91212)=0.129796=13%$

Hence, the ROE is 13%

b.

Summary Introduction

To compute: Return on assets (ROA)

b.

Expert Solution

Explanation of Solution

The formula to calculate return on asset is as follows:

$Return on asset=Net income+Interest expense(1−Tax rate)(Total assets at the start of the year+Total assets at the end of the year2)$

The calculation of return on capital is as follows:

$Return on assets=1,223+685×(1−.35)(27,714+27,5032)=0.0604=6.04%$

Hence, the ROA is 6.04%

c.

Summary Introduction

To compute: Return on capital (ROC)

c.

Expert Solution

Explanation of Solution

The formula to calculate return on capital is as follows:

$Return on capital=Net income+Interest expense×(1−Tax rate)([Long term debt and leases at the start of the year +shareholders equity at the end of the year]+[Long term debt and leases at the end of theyear+shareholders equity at the end of theyear]2)$

The calculation of return on equity is as follows:

$Return on capital=1,223+685×(1−.35)[(7,018+9,724)+(6,833+9,121)]2=0.1020=10.20%$

Hence, the ROC is 10.20%

d.

Summary Introduction

To compute: Days in inventory.

d.

Expert Solution

Explanation of Solution

The formula to calculate days in inventory is as follows:

$Days in inventory=Inventory in the start of the year(Cost of goods sold365)$

.

The calculation of days in inventory is as follows:

$Days in inventory==238(4,060365)=21.40 days$

Hence, the days in inventory is 21.40 days

e.

Summary Introduction

To compute: Inventory turn over

e.

Expert Solution

Explanation of Solution

The formula to calculate inventory turnover is as follows:

$Inventory turnover=Cost of goods soldInventory at start of year$

The calculation of inventory turnover is as follows:

$Inventory turnover==4,060(187+238)2=19.11$

Hence, the inventory turnover is 19.11

f.

Summary Introduction

To compute: Average collection period(ACP)

f.

Expert Solution

Explanation of Solution

The formula to calculate average collection period is as follows:

$Average collection period =Receivables at start of yearAverage daily sales$

The calculation of average collection period is as follows:

$Average collection period=2,490(13,193365)=68.89 days$

Hence, the ACP is 68.89 days.

g.

Summary Introduction

To compute: Operating profit margin (OPM)

g.

Expert Solution

Explanation of Solution

The formula to calculate operating profit margin is as follows:

$Operating profit margin==Net income + After-tax interestSales$

The calculation of operating profit margin is as follows:

$Operating profit margin=1,223+685×(1−.35)13,193=0.1264=12.64%$

Hence, the OPM is 12.64%

h.

Summary Introduction

To compute: Long term debt ratio

h.

Expert Solution

Explanation of Solution

The formula to calculate operating profit margin is as follows:

$Long term debt ratio=Long term debt and leases at the end of the year(long term debt and leases at the end of the year +shareholders equity at the end of the year)$

The calculation of long term debt ratio is as follows:

$Long-term debt ratio=7,0187,018+9,724=0.42$

Hence the long term debt ratio is 0.42

i.

Summary Introduction

To compute: Total debt ratio

i.

Expert Solution

Explanation of Solution

The formula to calculate total debt ratio is as follows:

$Total debt ratio=(Total current liabilities at the end of the year+Long term debt and leases at the end of the year+Other long term liabilities at the end of the yearTotal assets at the end of the year)$

The calculation of total debt ratio is as follows:

$Total debt ratio=4,794+7,018+6,17827,714=0.65$

Hence the total debt ratio is 0.65

j.

Summary Introduction

To compute: Times interest earned

j.

Expert Solution

Explanation of Solution

The formula to calculate times interest earned is as follows:

$Times interest earned=EBITInterest expense$

The calculation of times interest earned is as follows:

$Times interest earned=2,566685=3.75$

Hence the time interest earned is 3.75

k.

Summary Introduction

To compute: Cash coverage ratio

k.

Expert Solution

Explanation of Solution

The formula to calculate cash coverage ratio is as follows:

$Cash coverage ratio=(EBIT+Depreciation)Interest expense$

The calculation of cash coverage ratio is as follows:

$Cash coverage ratio==2,566+2,518685=7.42$

Hence the cash coverage ratio is 7.42

l.

Summary Introduction

To compute: Current ratio

l.

Expert Solution

Explanation of Solution

The formula to calculate current ratio is as follows:

$Current ratio=Current assetsCurrent liabilities$

The calculation of current ratio is as follows:

$Current ratio=3,5254,794=0.74$

Hence the current ratio is 0.74

m.

Summary Introduction

To compute: Quick ratio

m.

Expert Solution

Explanation of Solution

The formula to calculate quick ratio is as follows:

$Quick ratio=Cash + Marketable securities + ReceivablesCurrent liabilities$

The calculation of quick ratio is as follows:

$Quick ratio=89+2,3824,794=0.52$

Hence the quick ratio is 0.52

Answer 6

Chapter 4, Problem 7QP

a.

Summary Introduction

To compute: Return on equity (ROE)

a.

Expert Solution

Explanation of Solution

The formula to calculate return on equity is as follows:

$Return on equity=Net income(shareholders equity at the end of the year+share holders equity at thestart of the year2)$

The calculation of return on equity is as follows:

$Return on equity =1223(9724+91212)=0.129796=13%$

Hence, the ROE is 13%

Answer 7

Chapter 4, Problem 7QP

a.

Summary Introduction

To compute: Return on equity (ROE)

Answer 8

a.

Expert Solution

Explanation of Solution

The formula to calculate return on equity is as follows:

$Return on equity=Net income(shareholders equity at the end of the year+share holders equity at thestart of the year2)$

The calculation of return on equity is as follows:

$Return on equity =1223(9724+91212)=0.129796=13%$

Hence, the ROE is 13%

Answer 9

a.

Expert Solution

Answer 10

a.

Expert Solution

Answer 11

Expert Solution

Answer 12

b.

Summary Introduction

To compute: Return on assets (ROA)

b.

Expert Solution

Explanation of Solution

The formula to calculate return on asset is as follows:

$Return on asset=Net income+Interest expense(1−Tax rate)(Total assets at the start of the year+Total assets at the end of the year2)$

The calculation of return on capital is as follows:

$Return on assets=1,223+685×(1−.35)(27,714+27,5032)=0.0604=6.04%$

Hence, the ROA is 6.04%

Answer 13

b.

Summary Introduction

To compute: Return on assets (ROA)

Answer 14

b.

Expert Solution

Explanation of Solution

The formula to calculate return on asset is as follows:

$Return on asset=Net income+Interest expense(1−Tax rate)(Total assets at the start of the year+Total assets at the end of the year2)$

The calculation of return on capital is as follows:

$Return on assets=1,223+685×(1−.35)(27,714+27,5032)=0.0604=6.04%$

Hence, the ROA is 6.04%

Answer 15

b.

Expert Solution

Answer 16

b.

Expert Solution

Answer 17

Expert Solution

Answer 18

c.

Summary Introduction

To compute: Return on capital (ROC)

c.

Expert Solution

Explanation of Solution

The formula to calculate return on capital is as follows:

$Return on capital=Net income+Interest expense×(1−Tax rate)([Long term debt and leases at the start of the year +shareholders equity at the end of the year]+[Long term debt and leases at the end of theyear+shareholders equity at the end of theyear]2)$

The calculation of return on equity is as follows:

$Return on capital=1,223+685×(1−.35)[(7,018+9,724)+(6,833+9,121)]2=0.1020=10.20%$

Hence, the ROC is 10.20%

Answer 19

c.

Summary Introduction

To compute: Return on capital (ROC)

Answer 20

c.

Expert Solution

Explanation of Solution

The formula to calculate return on capital is as follows:

$Return on capital=Net income+Interest expense×(1−Tax rate)([Long term debt and leases at the start of the year +shareholders equity at the end of the year]+[Long term debt and leases at the end of theyear+shareholders equity at the end of theyear]2)$

The calculation of return on equity is as follows:

$Return on capital=1,223+685×(1−.35)[(7,018+9,724)+(6,833+9,121)]2=0.1020=10.20%$

Hence, the ROC is 10.20%

Answer 21

c.

Expert Solution

Answer 22

c.

Expert Solution

Answer 23

Expert Solution

Answer 24

d.

Summary Introduction

To compute: Days in inventory.

d.

Expert Solution

Explanation of Solution

The formula to calculate days in inventory is as follows:

$Days in inventory=Inventory in the start of the year(Cost of goods sold365)$

.

The calculation of days in inventory is as follows:

$Days in inventory==238(4,060365)=21.40 days$

Hence, the days in inventory is 21.40 days

Answer 25

d.

Summary Introduction

To compute: Days in inventory.

Answer 26

d.

Expert Solution

Explanation of Solution

The formula to calculate days in inventory is as follows:

$Days in inventory=Inventory in the start of the year(Cost of goods sold365)$

.

The calculation of days in inventory is as follows:

$Days in inventory==238(4,060365)=21.40 days$

Hence, the days in inventory is 21.40 days

Answer 27

d.

Expert Solution

Answer 28

d.

Expert Solution

Answer 29

Expert Solution

Answer 30

e.

Summary Introduction

To compute: Inventory turn over

e.

Expert Solution

Explanation of Solution

The formula to calculate inventory turnover is as follows:

$Inventory turnover=Cost of goods soldInventory at start of year$

The calculation of inventory turnover is as follows:

$Inventory turnover==4,060(187+238)2=19.11$

Hence, the inventory turnover is 19.11

Answer 31

e.

Summary Introduction

To compute: Inventory turn over

Answer 32

e.

Expert Solution

Explanation of Solution

The formula to calculate inventory turnover is as follows:

$Inventory turnover=Cost of goods soldInventory at start of year$

The calculation of inventory turnover is as follows:

$Inventory turnover==4,060(187+238)2=19.11$

Hence, the inventory turnover is 19.11

Answer 33

e.

Expert Solution

Answer 34

e.

Expert Solution

Answer 35

Expert Solution

Answer 36

f.

Summary Introduction

To compute: Average collection period(ACP)

f.

Expert Solution

Explanation of Solution

The formula to calculate average collection period is as follows:

$Average collection period =Receivables at start of yearAverage daily sales$

The calculation of average collection period is as follows:

$Average collection period=2,490(13,193365)=68.89 days$

Hence, the ACP is 68.89 days.

Answer 37

f.

Summary Introduction

To compute: Average collection period(ACP)

Answer 38

f.

Expert Solution

Explanation of Solution

The formula to calculate average collection period is as follows:

$Average collection period =Receivables at start of yearAverage daily sales$

The calculation of average collection period is as follows:

$Average collection period=2,490(13,193365)=68.89 days$

Hence, the ACP is 68.89 days.

Answer 39

f.

Expert Solution

Answer 40

f.

Expert Solution

Answer 41

Expert Solution

Answer 42

g.

Summary Introduction

To compute: Operating profit margin (OPM)

g.

Expert Solution

Explanation of Solution

The formula to calculate operating profit margin is as follows:

$Operating profit margin==Net income + After-tax interestSales$

The calculation of operating profit margin is as follows:

$Operating profit margin=1,223+685×(1−.35)13,193=0.1264=12.64%$

Hence, the OPM is 12.64%

Answer 43

g.

Summary Introduction

To compute: Operating profit margin (OPM)

Answer 44

g.

Expert Solution

Explanation of Solution

The formula to calculate operating profit margin is as follows:

$Operating profit margin==Net income + After-tax interestSales$

The calculation of operating profit margin is as follows:

$Operating profit margin=1,223+685×(1−.35)13,193=0.1264=12.64%$

Hence, the OPM is 12.64%

Answer 45

g.

Expert Solution

Answer 46

g.

Expert Solution

Answer 47

Expert Solution

Answer 48

h.

Summary Introduction

To compute: Long term debt ratio

h.

Expert Solution

Explanation of Solution

The formula to calculate operating profit margin is as follows:

$Long term debt ratio=Long term debt and leases at the end of the year(long term debt and leases at the end of the year +shareholders equity at the end of the year)$

The calculation of long term debt ratio is as follows:

$Long-term debt ratio=7,0187,018+9,724=0.42$

Hence the long term debt ratio is 0.42

Answer 49

h.

Summary Introduction

To compute: Long term debt ratio

Answer 50

h.

Expert Solution

Explanation of Solution

The formula to calculate operating profit margin is as follows:

$Long term debt ratio=Long term debt and leases at the end of the year(long term debt and leases at the end of the year +shareholders equity at the end of the year)$

The calculation of long term debt ratio is as follows:

$Long-term debt ratio=7,0187,018+9,724=0.42$

Hence the long term debt ratio is 0.42

Answer 51

h.

Expert Solution

Answer 52

h.

Expert Solution

Answer 53

Expert Solution

Answer 54

i.

Summary Introduction

To compute: Total debt ratio

i.

Expert Solution

Explanation of Solution

The formula to calculate total debt ratio is as follows:

$Total debt ratio=(Total current liabilities at the end of the year+Long term debt and leases at the end of the year+Other long term liabilities at the end of the yearTotal assets at the end of the year)$

The calculation of total debt ratio is as follows:

$Total debt ratio=4,794+7,018+6,17827,714=0.65$

Hence the total debt ratio is 0.65

Answer 55

i.

Summary Introduction

To compute: Total debt ratio

Answer 56

i.

Expert Solution

Explanation of Solution

The formula to calculate total debt ratio is as follows:

$Total debt ratio=(Total current liabilities at the end of the year+Long term debt and leases at the end of the year+Other long term liabilities at the end of the yearTotal assets at the end of the year)$

The calculation of total debt ratio is as follows:

$Total debt ratio=4,794+7,018+6,17827,714=0.65$

Hence the total debt ratio is 0.65

Answer 57

i.

Expert Solution

Answer 58

i.

Expert Solution

Answer 59

Expert Solution

Answer 60

j.

Summary Introduction

To compute: Times interest earned

j.

Expert Solution

Explanation of Solution

The formula to calculate times interest earned is as follows:

$Times interest earned=EBITInterest expense$

The calculation of times interest earned is as follows:

$Times interest earned=2,566685=3.75$

Hence the time interest earned is 3.75

Answer 61

j.

Summary Introduction

To compute: Times interest earned

Answer 62

j.

Expert Solution

Explanation of Solution

The formula to calculate times interest earned is as follows:

$Times interest earned=EBITInterest expense$

The calculation of times interest earned is as follows:

$Times interest earned=2,566685=3.75$

Hence the time interest earned is 3.75

Answer 63

j.

Expert Solution

Answer 64

j.

Expert Solution

Answer 65

Expert Solution

Answer 66

k.

Summary Introduction

To compute: Cash coverage ratio

k.

Expert Solution

Explanation of Solution

The formula to calculate cash coverage ratio is as follows:

$Cash coverage ratio=(EBIT+Depreciation)Interest expense$

The calculation of cash coverage ratio is as follows:

$Cash coverage ratio==2,566+2,518685=7.42$

Hence the cash coverage ratio is 7.42

Answer 67

k.

Summary Introduction

To compute: Cash coverage ratio

Answer 68

k.

Expert Solution

Explanation of Solution

The formula to calculate cash coverage ratio is as follows:

$Cash coverage ratio=(EBIT+Depreciation)Interest expense$

The calculation of cash coverage ratio is as follows:

$Cash coverage ratio==2,566+2,518685=7.42$

Hence the cash coverage ratio is 7.42

Answer 69

k.

Expert Solution

Answer 70

k.

Expert Solution

Answer 71

Expert Solution

Answer 72

l.

Summary Introduction

To compute: Current ratio

l.

Expert Solution

Explanation of Solution

The formula to calculate current ratio is as follows:

$Current ratio=Current assetsCurrent liabilities$

The calculation of current ratio is as follows:

$Current ratio=3,5254,794=0.74$

Hence the current ratio is 0.74

Answer 73

l.

Summary Introduction

To compute: Current ratio

Answer 74

l.

Expert Solution

Explanation of Solution

The formula to calculate current ratio is as follows:

$Current ratio=Current assetsCurrent liabilities$

The calculation of current ratio is as follows:

$Current ratio=3,5254,794=0.74$

Hence the current ratio is 0.74

Answer 75

l.

Expert Solution

Answer 76

l.

Expert Solution

Answer 77

Expert Solution

Answer 78

m.

Summary Introduction

To compute: Quick ratio

m.

Expert Solution

Explanation of Solution

The formula to calculate quick ratio is as follows:

$Quick ratio=Cash + Marketable securities + ReceivablesCurrent liabilities$

The calculation of quick ratio is as follows:

$Quick ratio=89+2,3824,794=0.52$

Hence the quick ratio is 0.52

Answer 79

m.

Summary Introduction

To compute: Quick ratio

Answer 80

m.

Expert Solution

Explanation of Solution

The formula to calculate quick ratio is as follows:

$Quick ratio=Cash + Marketable securities + ReceivablesCurrent liabilities$

The calculation of quick ratio is as follows:

$Quick ratio=89+2,3824,794=0.52$

Hence the quick ratio is 0.52

Answer 81

m.

Expert Solution

Answer 82

m.

Expert Solution

Answer 83

Expert Solution

Answer 84

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Return on equity (ROE)

Videos

To compute: Return on equity (ROE)

Explanation of Solution

To compute: Return on assets (ROA)

Explanation of Solution

To compute: Return on capital (ROC)

Explanation of Solution

To compute: Days in inventory.

Explanation of Solution

To compute: Inventory turn over

Explanation of Solution

To compute: Average collection period(ACP)

Explanation of Solution

To compute: Operating profit margin (OPM)

Explanation of Solution

To compute: Long term debt ratio

Explanation of Solution

To compute: Total debt ratio

Explanation of Solution

To compute: Times interest earned

Explanation of Solution

To compute: Cash coverage ratio

Explanation of Solution

To compute: Current ratio

Explanation of Solution

To compute: Quick ratio

Explanation of Solution

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