For questions 6-10 consider the following from The MJW Group Sales Cost of Goods Sold (COGS)

1200 A/R 300 650 Total Current Assets 600 Total Assets 1500 Labor Expense Utility Expense SGA expense Depreciation Net Interest Expense Tax Rate Dividends 100 Total Liabilities 600 50 100 Shares outstanding 450 40 10 40% 30

6. What is the Firm's Gross Margin Percentage? a. 50% b. 45.8% c. 65.2% d. 34% e. None of the above 7. What is the firm's Return on Equity? a. 5% b. 14.9% c. 16.6% d. 25% e. None of the above 8. What is the firm's Payout ratio? a. 12% b. 34% c. 20% d. 67% e. None of the above 9. Assuming the firms has constant sales throughout the year and credit terms of 2/10, net 30, which of the following is true? a. The Accounts Receivable staff should be praised for getting people to pay early. b. The Accounts Receivable turnover ratio is higher than would be anticipated given the firm's credit terms. c. The firm is being too harsh with their credit policy. d. The Accounts Receivable department is not enforcing their policy. e. All of the above are true. 10. What is the firm's stock price if the Market to Book ratio is 3.5? a. $ 9.00 b. $14.00 1. e 6. b d. $17.00 2. a 7. c 3. c 4. d 5. d 8. c 9. d 10. e

c. $23.00 e. $ 7.00

Answers

COMMON FINANCIAL RATIOS

GROUP Profitability Ratios Analysing on sales and trading margin

RATIO NAME Gross Profit %

Net Profit %

RATIO Gross Profit / Net Sales

Net / Net Sales

Return on Assets Return on Equity Liquidity or Short-Term Solvency ratios Short-term funds management Working Capital Current Ratio Quick Ratio (Acid Test) Asset Management or Activity Ratios Efficiency of asset usage Asset Turnover Inventory Turnover Average Collection Period

Net Profit / Average Total Assets Net Profit / Average Total Equity Current assets Current Liabilities Current Assets / Current Liabilities Current Assets Inventory Prepayments / Current Liabilities Bank Overdraft Net Sales/ Average Total Assets Cost of Goods Sold/ Average Ending Inventory Average accounts Receivable/ Average daily net credit sales* *Average daily net credit sales = net credit
sales / 365

Financial Structure or Capitalisation Ratios Long term funds management. Measures the riskiness of business in terms of debt gearing. Market Test Ratios Based on the share market's perception of the company.

Debt/Equity ratio Debt/Total Assets ratio Equity ratio Times Int. Earned Interest Coverage Earnings per share Dividends per share Dividend payout ratio Price Earnings ratio

Debt / Equity Debt / Total Assets Equity / Total Assets Earnings before Interest and Tax/ Interest Net Profit after tax / Number of issued ordinary shares Dividends / Number of issued ordinary shares Dividends per share / Earnings per share Market price per share / Earnings per share