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Calculate: Long-term Financing and Total Debt

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At year-end 2007, total assets for Bertin, Inc. were 1.2 million and accounts payable were $375,000. Sales, which in 2007 were $2.5 million, are expected to increase by 25% in 2008. Total assets and accounts payable are proportional to sales, and that relationship will be maintained. Bertin typically uses no current liabilities other than accounts payable. Common stock amounted to $425,000 in 2007, and retained earnings were $295,000. Bertin plans to sell new common stock in the amount of $75,000. The firm's profit margin on sales is 6%; 40% of earnings will be paid out as dividends.

a. What was Bertin's total debt in 2007?

b. How much new, long-term debt financing will be needed in 2008? (Hint: AFN - New Stock = New long-term debt). Do not consider any financing feedback effects.

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Solution Preview

Please see attached file for the calculations.

a. What was Bertin's total debt in 2007?

Total assets = $1,200,000

Current Liabilities (=Accounts payable) = $375,000

Shareholders' equity
Common stock = $425,000
Retained earnings = $295,000
Total shareholders' equity = $720,000 = $425,000 + $295,000.

Total Assets = Current Liabilities + Long Term Debt+ Shareholders' equity
Therefore, Long Term Debt = $105,000 =$1,200,000 - $375,000. - ...

Solution Summary

This solution provides a clear, step by step response which illustrates how to calculate both total debt and long-term debt for the company in question. An Excel file is also attached which outlines the calculations which are required. By clicking on the cells in the Excel file, you can see exactly how the calculations were derived.

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1. Calculating Ratios. Here are simplified financial statements of Phone Corporation from a recent year.

Income Statement
(Figures in millions of dollars)

Net Sales 13,193
Cost of goods sold 4,060
Other Expenses 4,049
Depreciation 2,518
Earings before interest and taxes (EBIT) 2,566
Interest expenses 685
Income before tax 1,881
Taxes 570
Net Income 1,311
Dividends 856

BALANCE SHEET
(Figures in millions of dollars)
End Of Year Start of Year
Assets
Cash and marketable securities 89 159
Receivables 2,382 2,409
Inventories 187 238
Other Current assets 867 932
Total Current Assets 3,525 3,818
Net property, plant, and equipment 1,973 19,915
Other Long-Term assets 4,216 3,770
Total Asstets 27,714 27,503
Liabilities and Shareholders Equity
Payables 2,564 3,040
Short Term Debt 1,419 1,573
Other current liabilities 811 787
Long term debt and leases 4,794 5,400
Other long term liabilities 7,018 6,833
Shareholders equity 6,178 6,149
Total Libailiites and shareholders equity9,724 9,121
27,714 27,503

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Long Term debt ratio
Total debt ratio
Times Interest Earned
Cash Coverage ratio
Current Ratio
Quick Ratio
Operating Profit Margin
Inventory Turnover
Days in Inventory
Average Collection Period
Return on Equity
Return on Assets
Payout Ratio

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If there were 205 million shares outstanding what were earnings per share? The Price -earnings ratio?

4. Common Size Balance Sheet - Prepare a common size balance sheet for Phone Corpo using the balance sheet from problem 1.

5. Du Pont Analysis - Use the data for Phone Corpo to confimr that ROA=assetturnover x operating profit margin.

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and demonstrate the ROE =leverage ratiox operating profit margin x debt burden.

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