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# Computation of ratios and missing information

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201-
Return on Equity = ROE =25%
Net Profit Margin = NPM=5%
Total Asset Turnover = TAT=2
Inventory = \$4,000
Accounts Receivables = \$2,500
Sales = \$50,000,
Current Liabilities = \$5,000
Net Working Capital = NWC = \$2,000
All sales are on credit.
Assume no prepaid expenses.
Assume 365 days
Compute the following:
1. Debt ratio,
2. Debt/equity ratio
3. Equity multiplier
4. Total assets
5. Total debt
6. Long term debt
7. If total assets comprise of CA and Fixed Assets, compute Fixed Assets
8. Current ratio, quick ratio
9. Accounts Receivable Turnover, Average Collection Period
10. Return on Assets = ROA
205
Given the following information for O'Hara Marine Co., calculate the depreciation expense: Sales = \$29,000, Costs = \$13,000, Transfer to RE = \$500, Dividend paid = \$900, Interest Expense = \$1,600, Tax Rate = 35%
Hint: first write down the headings for the Income Statement and then work your way from bottom to top, one step at a time.
Note that, Market price per share is same as price per share is same as market value per share.

#### Solution Preview

201-
Return on Equity = ROE =25%
Net Profit Margin = NPM=5%
Total Asset Turnover = TAT=2
Inventory = \$4,000
Accounts Receivables = \$2,500
Sales = \$50,000,
Current Liabilities = \$5,000
Net Working Capital = NWC = \$2,000
All sales are on credit.
Assume no prepaid expenses.
Assume 365 days
Before computing the ratios, we have to find the hidden information.
Sales = \$50,000 and net profit margin = 5% and therefore, net profit = 50,000*5% = \$2,500
Total asset turnover = Sales / Total assets = 50,000/ Total assets = 2; So, total assets = 50,000/2=\$25,000
NWC = Current assets - Current liabilities  Current assets - 5,000 = 2,000; So, current assets = \$7,000
ROE = Net income/Equity = 2,500 / Equity = 25%; So, equity = 2,500/.25 = ...

#### Solution Summary

This solution shows step-by-step computations the determines the required ratios and missing information.

\$2.19