ABC Corporation Company is planning to apply for long-term debt from a bank. For this purpose company is calculating some key ratios to satisfy the bank at the same time some key ratios to grasp some potential investors. You are provided with the recent financial statements of the company and asked to calculate:

ABC Corp.Balance Sheet ($ in Millions)

Assets201

0200

9 Liabilities201

0200

9Cash & Cash Equivalents 140 107 Accounts Payables 213 197Accounts Receivables 294 270 Notes Payable 50 53Inventories 269 280 Accrued Expenses 223 205Others 58 50 Others 0 0Total Current Assets 761 707 Total Current Liabilities 486 455Fixed Assets Long-Term Liabilities

Plant & Equipment142

3127

4 Deferred Taxes 117 104Less: Acc. Depreciation -550 -460 Long-Term Debt 471 458Net Plant 873 814 Total Long-term Liabilities 588 562Intangible Assets 245 221 Shareholders’ Equity

Total Fixed Assets111

8103

5 Preferred Stock 39 39 Common Stock* 55 32 Capital Surplus 347 327 Retained Earnings 390 347 Less: Treasury Stock -26 -20 Total Equity 805 725

Total Assets187

9174

2 Total Liabilities187

9174

2*The company has 29 million shares outstanding with market price of 5 per share.

ABC Corp. Income Statement ($ in Millions)

Total Revenues 2262Cost of Goods Sold -1655Selling, General and Marketing Expenses -327Depreciation -90Operating Income 190Other Income 29EBIT 219Less: Interest -49EBT 170Tax Expenses -84Net Income 86

ABC Corp. Sources & Uses Statement ($ in millions)

Cash From Operations Net Income 86Depreciation 90Deferred Tax 13Increase In A/R -24Decrease In Inventories 11Increase In A/P 16Increase in Accrued Exp 18Decrease in Notes Payable -3Others -8Net Cash From Operations 199Cash From Investing Acquisition of Fixed Assets -198Sale of fixed assets 25Net Cash From Investing -173Cash From Financing Retirement of Debt -73Proceeds from long-term Debt 86Dividends -43Purchase of Stocks -6Proceeds from new stocks 43Net Cash from Financing 7Net Change in Cash (in Balance Sheet) 33

CALCULATION OF KEY RATIOS

1. Cash cycle of ABC Corporation

Formula:-

Cash Cycle= Accounts Receivable days + Inventory days - Accounts Payable days

= 45.5 days + 44.3 days – 45.1 days

Cash Cycle = 45 days

a) Working for Accounts Receivable Days:-

Accounts Receivable Turnover ratio = Sales

Accounts Receivable

=2262282

= 8.02 X

Average Accounts Receivable = 270+294

2

= 282

Accounts Receivable days = 365/8.02

= 45.5 days

b) Working for Inventory Days:-

Inventory Turnover ratio = Sales/Inventory

= 2262/274.5

= 8.24 X

Average Inventory = 280+269

2

= 274.5

Inventory Days = 365/8.24

= 44.3 days

c) Working for Accounts Payable:-

Accounts Payable Turnover Ratio = Co st of Goods SoldAccounts Payable

= 1655/205

= 8.1 X

Average Accounts Payable = 197+213

2

= 205

Accounts Payable Days = 365/8.1

= 45.1 days

2. TIE Ratio

Formula:-

TIE Ratio = EBITInterest

= 219/ 49

TIE Ratio= 4.46 X

3. Return on Assets (ROA)

Formula:-

Return on Assets = Net IncomeTotal Assets

= 861811 =0.05×100

Return on Assets = 5%

Working of Total Assets:-

Average Total Assets = 1742+1879

2

= 1811

4. Earning per share

Formula:-

Earning Per Share = Net IncomeNoof Shares

=8629

Earning Per Share =$ 2.96

5. Debt to Equity Ratio

Formula:-

Debt to Equity Ratio = LongTermDebt

Equity

=465765 =0.61×100

Debt to Equity = 61%

I. Calculation of Long Term Debt :-

Average Long Term Debt = 458+471

2

= 465

II. Calculation of Equity :-

Average Total Equity = 725+805

2

= 765

6. Price to Earning Ratio

Formula:-

Price to Earning Ratio = Price Per ShareEarning Per Share

= 52.96

Price to Earning Ratio= $1.689

7. Payout Ratio

Formula:-

Payout Ratio = DividendPaidNet Income

= 4386 =0.05×100

Payout Ratio = 5 %

8. DUPONT Analysis

Formula:-

DUPONT Analysis = Net IncomeEquity

=86765 =0.112×100

DUPONT Analysis =11.2%