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# Calculate Financial Ratios for Pro Forma

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1. Problem-solving: Use the following data from a firm's pro forma (i.e., projected or forecasted) financial statements to calculate the following profitability ratios for the firm, assuming that all stocks are common stocks: (a) net profit margin; (b) return on total assets; (c) return on equity; (d) price-earnings ratio.

Sales \$150 million

Net income 12 million

Total Assets 600 million

Stockholders' Equity 200 million

Number of Common Stock Shares 4 million

Price per share of common stock \$50.00

2. Problem-solving: Use the following data from a firm's pro forma financial statements to calculate the following ratios for the firm: (a) current ratio to measure liquidity; (b) debt-equity ratio to measure leverage; (c) accounts receivable turnover to measure efficiency; (d) accounts payable turnover to measure efficiency.

Current Assets \$200 million

Current Liabilities 150 million

Total Liabilities 400 million

Stockholders' Equity 200 million

Sales 150 million

Accounts Receivable 80 million

Costs of Goods Sold 130 million

Accounts Payable 65 million

#### Solution Preview

1.
(a) Net profit margin = Net income/Sales
Net profit margin = \$12,000,000/\$150,000,000
Net profit margin = .08 (or 8 percent)

(b) Return on total assets = Net income/Total assets
Return on total assets = \$12,000,000/\$600,000,000
Return on total assets = .02 (or 2 percent)

(c) Return on equity = Net income/Total ...

#### Solution Summary

This solution illustrates how to calculate various financial ratios.

\$2.19