Answer the Problem Set Question #7 Calculating a company’s financial ratios

Address the questions and calculate the ratios. Please use formulas on pages 14-15

Using the information provided, calculate this firm’s ROA, ROE, gross profit margin, and quick ratio. If this firm’s WACC is 6.6 percent and the average firm in its industry has an ROA of 8 percent, is this firm earning above or below normal economic performance and above or below average accounting performance?

Net sales 6,134                                                        Operating cash 3,226                  Net other operating assets 916

Cost of goods sold (4,438)                                     Accounts receivable 681                Total assets 5,161

Selling, general administrative expenses (996)        Inventories 20                              Net current liabilities 1,549

Other expenses (341)                                              Other current assets 0                 Long-term debt 300

Interest income 72                                                   Total current assets 3,927           Deferred income taxes 208

Interest expense (47)                                               Gross properties, plant, equipment 729   Preferred stock 0

Provision for taxes (75)                                          Accumulated depreciation (411)              Retained earnings 0

Other income 245                                                    Book value of fixed assets 318               Common stock 3,104

Net income 554                                                       Goodwill 0        Other liabilities 0                                                                                                                                  Total liabilities and equity 5,161

Answer the Problem Set Question #7 Calculating a company’s financial ratios

Address the questions and calculate the ratios. Please use formulas on pages 14-15

Using the information provided, calculate this firm’s ROA, ROE, gross profit margin, and quick ratio. If this firm’s WACC is 6.6 percent and the average firm in its industry has an ROA of 8 percent, is this firm earning above or below normal economic performance and above or below average accounting performance?

Net sales 6,134                                                        Operating cash 3,226                  Net other operating assets 916

Cost of goods sold (4,438)                                     Accounts receivable 681                Total assets 5,161

Selling, general administrative expenses (996)        Inventories 20                              Net current liabilities 1,549

Other expenses (341)                                              Other current assets 0                 Long-term debt 300

Interest income 72                                                   Total current assets 3,927           Deferred income taxes 208

Interest expense (47)                                               Gross properties, plant, equipment 729   Preferred stock 0

Provision for taxes (75)                                          Accumulated depreciation (411)              Retained earnings 0

Other income 245                                                    Book value of fixed assets 318               Common stock 3,104

Net income 554                                                       Goodwill 0        Other liabilities 0                                                                                                                                  Total liabilities and equity 5,161