FSU Manufacturing, Inc. has the following financial statements data for 2014:
Income Statement
Balance Sheet
Sales
$102,500
Cash
$40,000
Cost of Goods
$50,000
Fixed Assets
$55,000
SG&E Expenses
$35,000
Total Assets
$95,000
EBIT
$17,500
Accounts Payable
$12,000
Interest Expense
$2,500
Long-term Debt
$25,000
Taxes
$6,000
Retained Earnings
$28,000
Net Income
$9,000
Paid-in Common Equity
$30,000
Trait 1
Use of financial statements
1.
a.
Compute the firmâs debt ratio and current ratio.
b.
Is the firm profitable? Does the balance sheet balance? Explain.
c.
If the firm paid $5,000 in dividends in 2014, what was its retained earnings balance at the end of 2013? (20 points)
Trait 2
Student relates financial ratios to improved business decisions
2.
a.
Compute the firmâs net profit margin, total asset turnover, and financial leverage multiplier (also known as the equity multiplier).
b.
Explain what each of the three ratios above tells you about the firmâs performance and how they combine to form the firmâs return on equity.
c.
The financial data for the firmâs major competitors show on average a net profit margin of 16%, total asset turnover of 1.25, but comparable leverage. Identify some possible business decisions that the firm could make so that it would be as attractive an investment as its competitors.
FSU Manufacturing, Inc. has the following financial statements data for 2014:
| Income Statement | Balance Sheet | |||
| Sales | $102,500 | Cash | $40,000 | |
| Cost of Goods | $50,000 | Fixed Assets | $55,000 | |
| SG&E Expenses | $35,000 | Total Assets | $95,000 | |
| EBIT | $17,500 | Accounts Payable | $12,000 | |
| Interest Expense | $2,500 | Long-term Debt | $25,000 | |
| Taxes | $6,000 | Retained Earnings | $28,000 | |
| Net Income | $9,000 | Paid-in Common Equity | $30,000 |
| Trait 1 | Use of financial statements | ||
| 1. | |||
| a. | Compute the firmâs debt ratio and current ratio. | ||
| b. | Is the firm profitable? Does the balance sheet balance? Explain. | ||
| c. | If the firm paid $5,000 in dividends in 2014, what was its retained earnings balance at the end of 2013? (20 points) | ||
| Trait 2 | Student relates financial ratios to improved business decisions | ||
| 2. | |||
| a. | Compute the firmâs net profit margin, total asset turnover, and financial leverage multiplier (also known as the equity multiplier). | ||
| b. | Explain what each of the three ratios above tells you about the firmâs performance and how they combine to form the firmâs return on equity. | ||
| c. | The financial data for the firmâs major competitors show on average a net profit margin of 16%, total asset turnover of 1.25, but comparable leverage. Identify some possible business decisions that the firm could make so that it would be as attractive an investment as its competitors. | ||
