Question

The balance sheet and income statement shown below are for Pettijohn Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.
Balance Sheet (Millions of $)




Assets


2010

Cash and securities


$1,554.0

Accounts receivable


9,660.0

Inventories


13,440.0

Total current assets


$24,654.0

Net plant and equipment


17,346.0

Total assets


$42,000.0

Liabilities and Equity




Accounts payable


$7,980.0

Notes payable


5,880.0

Accruals


4,620.0

Total current liabilities


$18,480.0

Long-term bonds


10,920.0

Total debt


$29,400.0

Common stock


3,360.0

Retained earnings


9,240.0

Total common equity


$12,600.0

Total liabilities and equity


$42,000.0






Income Statement (Millions of $)


2010

Net sales


$58,800.00

Operating costs except depr’n


$54,978.0

Depreciation


$1,029.0

Earnings before int. and taxes (EBIT)


$2,793.0

Less interest


1,050.0

Earnings before taxes (EBT)


$1,743.0

Taxes


$610.1

Net income


$1,133.0

Other data:




Shares outstanding (millions)


175.00

Common dividends


$509.83

Int rate on notes payable & L-T bonds


6.25%

Federal plus state income tax rate


35%

Year-end stock price


$77.69





1. What is the firm's current ratio? (Points : 6)
0.97
1.08
1.20
1.33

2. What is the firm's quick ratio? (Points : 6)
0.49
0.61
0.73
0.87

3. What is the firm's total assets turnover? (Points : 6)
0.90
1.12
1.40
1.68

4. What is the firm's inventory turnover ratio? (Points : 6)
4.38
4.59
4.82
5.06

5. What is the firm's debt ratio? (Points : 6)
45.93%
51.03%
56.70%
70.00%

6. What is the firm's ROA? (Points : 6)
2.70%
2.97%
3.26%
3.59%

7. What is the firm's ROE? (Points : 6)
8.54%
8.99%
9.44%
9.91%

Answer 1

Answer:

1. Current ratio 1.33

2. Quick ratio 0.61

3. Total asset turnover 1.4

4. Inventory turnover ratio 4.38

5. Debt ratio 70.00%

6. ROA 2.7%

7. ROE 8.99%

Explanation:

1. Current ratio is calculated from formula :

Total Current Assets / Total Current Liabilities

$24,654 / $18,480 = 1.33

2. Quick ratio is calculated from formula :

(Total Current Assets - Inventory) / Total Current Liabilities

($24,654 - $13,440) / $18,480 = 0.61

3.  Total Asset turnover ratio is calculated from formula :

Net Sales / Average Total Assets

$58,800 / $42,000 = 1.4

4. Inventory turnover ratio is calculated from formula :

Cost of Goods Sold / Average Total Inventory

$54,978 / $13,440  = 4.38

5. Debt ratio is calculated from formula :

Total Liabilities / Total Assets

$29,400 / $42,000 = 70%

6. Return on Asset ROA is calculated from formula :

(Net Income / Average Total Assets ) * 100

$1,133 / $42,000 = 2.7%

7. Return on Equity ROE is calculated from formula :

(Net Income / Shareholder's Equity ) * 100

$1,133 / $12,600 = 8.99%