# Calculating Ratios of Financial Statements of Phone Corp.

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

Calculate the following ratios

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

2. Gross Investment - What was Phone Corps gross investment in plant and other equipment?

3. Market Value Ratios - If the market value of Phone Corpo 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?

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.

6. Du Pont Analysis - Use the data from Phone Corp problem 1 to calcualte the ROE for Phone Corp

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

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#### Solution Preview

Please refer to the attachment.

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<br>Calculate the following ratios

<br>Long-term debt ratio = (long-term debt) / (long-term debt + equity) 0.266

<br>Total debt ratio = (total liabilities) / (total assets) 0.777

<br>Times interest earned ratio (interest cover ratio) = (EBIT) / (interest payments) 3.746

<br>Cash coverage ratio = (EBIT + depreciation) / (interest payments) 7.422

<br>Current ratio = (current assets) / (current liabilities) 0.735

<br>Quick ratio = (cash + marketable securities + receivables) / (current liabilities) 0.515

<br>Operating Profit Margin = NI / Sales 0.099

<br>Inventory turnover = (cost of goods sold) / ...