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
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Solution Summary
This solution illustrates how to calculate various financial ratios.
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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 ...
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