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Calculating Ratios and Comparative Balance Sheet

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

INCOME STATEMENT
(fi (figur gures in millions of dollars) es in millions of dollars)

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

(figures in millions of dollars) end of year Start of year
End of Year Start of Year

Assets
Cash and marketable securities 89 158
Receivables 2382 2,490
Inventories 187 238
Other current assets 867 932
Total current assets 3,525 3,818
Net property, plant, and equipment 19,973 19,915
Other long-term assets 4,216 3,770
Total assets 27714 27,503
Liabilities and shareholders' equity
Payables 2,564 3,040
Short-term debt 1,419 1,573
Other current liabilities 811 787
Total current liabilities 4,794 5,400
Long-term debt and leases 7,018 6,833
Other long-term liabilities 6,178 6,149
Shareholders' equity 9,724 9,121
Total liabilities and shareholders' equity 27,714 27,503

1 Calculate the following financial ratios:
a. Long-term debt ratio
b. Total debt ratio
c. Times interest earned
d. Cash coverage ratio
e. Current ratio
f. Quick ratio
g. Operating profit margin
h. Inventory turnover
i. Days in inventory
j. Average collection period
k. Return on equity
l. Return on assets
m. Payout ratio
2. Gross Investment. What was Phone Corp.'s gross investment in plant and other equipment?
3. Market Value Ratios. If the market value of Phone Corp. stock was $17.2 billion at the end of
the year, what was the market-to-book ratio? If there were 205 million shares outstanding, what
were earnings per share? The price-earnings ratio?

COMPARATIVE BALANCE SHEET
IN MILLIONS
ASSETS END OF YEAR BEG OF YEAR

CURRENT ASSETS
CASH 89 158
RECEIVABLES 2382 2490
INVENTORIES 187 238
OTHER CURRENT ASSETS 867 932
TOTAL CURRENT ASSETS 3525 3818
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$2.19