Business Finance
Homework Problem - Chapter Five. This is a comprehensive problem that provides a review of the material covered in the course to date (particularly chapters 3,4, and 5).
Branson Bowling Equipment Company
Balance Sheet - December 31, 2011
Assets
Liabilities and Stockholder's Equity
Cash
$70,000
Accounts Payable
$3,080,000
Marketable Securities
Accrued Expenses
Accounts Receivable
4,200,000
Notes Payable (Due 9/26/12
Inventory
Bonds (10%)
Gross Plant and Equipment
Common Stock (2,380,000
Shares, par value $1.00
Accumulated Depreciation
Retained Earnings
1,652,000
Total Assets
$11,382,000
Total Liabilities and Stockholder's Equity
$11,382,000
Income Statement - 2011
Sales (All credit sales)
$9,800,000
Fixed Costs1
2,940,000
Variable Costs (0.60)
5,880,000
Earnings Before Interest and Taxes
980,000
Less: Interest
350,000
Earnings Before Taxes
$630,000
Less: Taxes @ 36%
226,800
Earnings After Taxes
403,200
Dividends (40% payout)
161,200
Increased Retained Earnings
$241,800
1 Fixed costs include both lease expenses of $280,000 and depreciation of $700,000
The table below shows selected ratios for the firms in this industry.
Profit margin
5.75%
Profit Margin: 403,200 / 9,800,000 = 4.11%
ROA: 630,000 / 11,382,000 = 5.53%
ROE: 403,200 / 2,380,000 = 16.94%
Rec. Turnover: 9,800,000 / 4,200,000 = 2.33
Inv. Turnover: 9,800,000 / 1,400,000 = 7
Fixed Asset Turnover: 9,800,000 / (8,400,000 -- 2,800,000) = 1.75
Total Asset: 9,800,000 / 11,382,000 = 0.86
Current Ratio: (70,000 + 112,000 + 4,200,000 + 1,400,000) /
(3,080,000 + 210,000 + 560,000)= 1.5
Quick Ratio: (70,000+112,000+4,200,000) / (3,080,000+210,000+560,000)= 1.14
Interest Coverage: 980,000 / 350,000 = 2.8
Fixed Charge Coverage: (980,000 + 280,000) / (280,000 + 350,000) = 2
The firm is currently operating with a net profit margin that is roughly 71.5% of…
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