CHAPTER 2

Solutions to Self-Test Problems

ST2-1 Billingsworth paid $2 in dividends and retained $2 per share. Because total retained earnings
rose by $12 million, there must be 6 million shares outstanding. With a book value of $! per
share, total common e"uity must be $!#6 million$ % $2! million. Because Billingsworth has
$12! million of debt, its debt ratio must be &&.& percent'
( & . && &&& . !
million $2! million 12! $
million 12! $
)"uity *ebt
*ebt
+ssest
*ebt
ratio *ebt

+

+

ST2-2 (1) ,perating cash flow % -et income . *epreciation % $12!,!!! . $2/,!!! % $1/,!!!
(2) 0ree cash flow % ,perating cash flow 1 2nvestments % $1/,!!! 3 $1/!,!!! % 3$/,!!!
(3) )4+ % -,2#1 1 5a6 rate$ 3 7#2nvested capital$ 6 #+fter3ta6 cost of capital as a percent$8
% $12!,!!!#1 1 !.!$ 1 7$/!!,!!!#!.12$8
% $92,!!! 3 $6!,!!! % $12,!!!
ST2-3 a. 2n answering "uestions such as this, always begin by writing down the relevant definitional
e"uations, then start filling in numbers. -ote that the e6tra :eros indicating millions have
been deleted in the calculations below. 5he results are not rounded until the final answer.
(1)
A/R = 40($2.778) = $111.1 million
(2)
;urrent liabilities % #$1!! . 111.1$<2 % $1!/.//
( )

,
_

&6!
!!! , 1 $
receivable +ccounts
!
&6!
=ales
receivable +ccounts
*=,
s liabilitie ;urrent
1 . 111 $ 1!! $
! . 2
! . 2
s liabilitie ;urrent
+<> securities ? ;ash
s liabilitie ;urrent
s 2nventorie 3 assets ;urrent
ratio @uick
+

+

;hapter 2
(3)
;urrent assets % &.!#$1!/.//$ % $&16.6/
(4) 5otal assets % ;urrent assets . 0i6ed assets % $&16.9 . $2A&./ % $6!!.2 million.
(5)
() >,+ % Brofit margin 6 5otal assets turnover

(!) 5otal assets % 5otal claims % $6!!.1 million
;urrent liabilities . Cong3term debt . )"uity % $6!!.1 million
$1!/.6 . Cong3term debt . $16.9 % $6!!.1 million
Cong3term debt % $6!!.1 1 $1!/.6 1 $16.9 % $ 99.A million
b. DaiserEs average sales per day were $1,!!!<&6! % $2.99A million. 2ts *=, was !, so +<> %
!#$2.99A$ % $111.1 million. 2ts new *=, of &! would result in +<> % &!#$2.99A$ % $A&.&
million. 5he reduction in receivables would be $111.1 1 $A&.& % $29.A million, which would
e"ual the amount of cash generated.
(1) -ew e"uity % ,ld e"uity 1 =tock bought back
% $16.9 1 $29.A % $&AA.F million.
5hus,
F . &AA $
$/!
e"uity -ew
income -et
>,) -ew
% 12.A6( #versus old >,) of 12.!($
2
! . &
$1!/.//
;+
s liabilitie ;urrent
assets ;urrent
ratio ;urrent
s liabilitie ;urrent
$111.1 $1!!
2.!
2.!
s liabilitie ;urrent
+<> securities ? ;ash
s liabilitie ;urrent
s 2nventorie 3 assets ;urrent
ratio @uick
+

+

A.&&( !.!A&& 1.669 !.!/
$6!!.1
$1,!!!
$1,!!!
$/!
assets 5otal
=ales
=ales
income -et


;hapter 2
(2)
% A.9( #versus old >,= of A.&&($
(3) 5he old debt is the same as the new debt'
*ebt % 5otal claims 1 )"uity
% $6!!.1 1 $16.9 % $1A&. million.
,ld total assets % $6!!.1 million
-ew total assets % ,ld total assets 1 >eduction in +<>
% $6!!.1 1 $29.A
% $/92.& million.
5herefore,
while
PR"#$E%S
231 a. ;urrently, >,) is >,)1 % $1/,!!!<$2!!,!!! % 9./(
5he current ratio will be set such that 2./ % ;+<;C. ;C is $/!,!!! % $&!,!!! . $2!,!!!,
and it will not change, so we can solve to find the new level of current assets' ;+ %
2./#;C$ % 2./#$/!,!!!$ % $12/,!!!. 5his is the level of current assets that will produce a
current ratio of 2./6.
+t present, current assets amount to $21!,!!!, so they can be reduced by $21!,!!! 1
$12/,!!! % $A/,!!!.
2f the $A/,!!! generated is used to retire common e"uity, then the new common e"uity
balance will be $2!!,!!! 1 $A/,!!! % $11/,!!!.
+ssuming that net income is unchanged, the new >,) will be >,)2 % $1/,!!!<$11/,!!!
% 1&.!(. 5herefore, >,) will increase by 1&.!( 1 9./!( % /./(.
b. #1$ *oubling the dollar amounts would not affect the answerG the >,) increase would still
be /./(.
#2$ ;urrent assets would increase by $2/,!!!, which would mean a new >,) of
$1/,!!!<$1!,!!! % 1!.91(, which would mean a difference of 1!.91( 1 9./!( %
&.21(.
&
$29.A 3 $6!!.1
/! $
+<> in >eduction 3 assets 5otal
income -et
>,+ -ew
( 6 . &! &!6 . !
1 . 6!! $
$1A&.
assets total ,ld
*ebt

( ! . &2 &2 . !
& . /92 $
$1A&.
assets total -ew
ebt d -ew

;hapter 2
#&$ 2f the company had 1!,!!! shares outstanding, then its )B= would be $1/,!!!<1!,!!!
% $1./!. 5he stock has a book value of $2!!,!!!<1!,!!! % $2!, so the shares retired
would be $A/,!!!<$2! % ,2/!, leaving 1!,!!! 1 ,2/! % /,9/! shares. 5he new )B=
would be $1/,!!!</,9/! % $2.6!A9, so the increase in )B= would be $2.6!A9 1 $1./!
% $1.1!A9, which is a 9&.F1( increase, the same as the increase in >,).
#$ 2f the stock was selling for twice book value, or 2 6 $2! % $!, then only half as many
shares could be retired #$A/,!!!<$! % 2,12/$, so the remaining shares would be
1!,!!! 1 2,12/ % 9,A9/, and the new )B= would be $1/,!!!<9,A9/ % $1.F!A, for an
increase of $1.F!A 1 $1./!!! % $!.!A.
232 a. =ources and Hses of 0unds +nalysis'
$lo&' $umber Com(an&
#alan)e S*eet
(+ millions)
Ian. 1 *ec. &1 =ource Hse
;ash $ 9 $ 1/ $ A
Jarketable securities ! 11 11
-et receivables &! 22 $ A
2nventories /& 9/ 22
5otal current assets $ F! $12&
Kross fi6ed assets $ 9/ $12/ /!
Cess' depreciation 2/ &/ 1!L
-et fi6ed assets $ /! $ F!
5otal assets $1! $21&
+ccounts payable $ 1A $ 1/ &
-otes payable & 1/ 12
,ther current liabilities 1/ 9 A
Cong3term debt A 2 16
;ommon stock 2F /9 2A
>etained earnings 69 F/ 2A
5otal liabilities and e"uity $1! $21& $1!2 $1!2
L*epreciation is not a source of cash, but it affects cash in the form of ta6es on the
income statement
b. $lo&' $umber Com(an&
Statement of Cas* ,lo-s
(+ millions)
,perating +ctivities'
-et income $ &&
Other additions (sources of cash):
*epreciation $ 1!
*ecrease in accounts receivable A
Subtractions (uses of cash):
2ncrease in inventories #$22$
*ecrease in accounts payable # &$
*ecrease in other current liabilities # A $
-et cash flow from operations $ 1A

;hapter 2
Cong 3term 2nvesting +ctivities'
+c"uisition of fi6ed assets #$ /!$
0inancing +ctivities'
2ncrease in notes payable $ 12
=ale of long3term debt 16
=ale of common stock 2A
Bayment of dividends # / $
-et cash flow from financing $ /1
-et increase in cash and marketable securities $ 1F
;ash and marketable securities at beginning of year 9
;ash and marketable securities at end of year $ 26
c. 2nvestments were made in plant and inventories. 0unds were also utili:ed to reduce
accounts payable and other current liabilities and to increase the cash and marketable
securities accounts. Jost funds were obtained by increasing long3term debt, selling
common stock, and retaining earnings. 5he remainder was obtained from increasing
notes payable and reducing receivables. + "uick check of the ratios shows that the
companyMs credit has not deterioratedNthe current and "uick ratios have increased, and
the debt ratio has gone down slightly. >atio analysis and the sources and uses statement
both indicate a healthy situation.
23& a. *ollars are in millions.
.n)ome Cas*
Statement ,lo-s

=ales revenues $12.! $12.!
;osts, e6cept depreciation # F.!$L # F.!$
*epreciation # 1 ./$ 33
5otal operating costs #1! ./$ # F.!$ #;ash costs$
-et operating income #-,2$ $ 1./ $ &.! #Bre3ta6 ;0$
5a6es #!($ # ! .6$ # ! .6$ #;ash ta6es$
,perating income after ta6es $ !.F
+dd back depreciation 1 ./
;ash flow from operations $ 2 . $ 2 .
L;osts, e6cept depreciation % !.9/ 6 $12.! % $F.!
-et income % #-,2 1 2nterest$#1 1 5$ % #$1./ 3 $1.!$#!.6$ % $!.&
b. *epreciation doubles.
.n)ome Cas*
Statement ,lo-s

=ales revenues $12.! $12.!
;osts, e6cept depreciation #F.!$ #F.!$
*epreciation #& .!$ 333
5otal operating costs #12 .!$ # F .!$ #;ash costs$
-et operating income #-,2$ $ !.! $ &.! #Bre3ta6 ;0$
5a6es #!($ # ! .!$ # ! .!$ #;ash ta6es$
,perating income after ta6es $ !.!
+dd back depreciation & .!
;ash flow from operations $ & .! $ & .!
-et income % #-,2 1 2nterest$#1 1 5$ % #$!.! 3 $1.!$#!.6$ % 1$!.6
c. *epreciation halves.
.n)ome Cas*
Statement ,lo-s
/
;hapter 2

=ales revenues $12.!! $12.!!
;osts, e6cept depreciation #F.!!$ #F.!!$
*epreciation #! .9/$ 333
5otal operating costs # F .9/$ # F .!!$ #;ash costs$
-et operating income #-,2$ $ 2.2/ $ &.!! #Bre3ta6 ;0$
5a6es #!($ # ! .F!$ # ! .F!$ #;ash ta6es$
,perating income after ta6es $ 1.&/
+dd back depreciation ! .9/
;ash flow from operations $ 2 .1! $ 2 .1!
-et income % #-,2 1 2nterest$#1 1 5$ % #$2.2/ 3 $1.!$#!.6$ % $!.9/
d. 5he after3ta6 cash flows are greater if ;ongress increases the allowance for depreciation,
so you should prefer greater depreciation.
23 a. *ollar amounts are in millions.
2ndustry
Hnilate +verage ;omment
;urrent assets $!!
;urrent
ratio
;urrent liabilities $1!/
&.A16 &.F6 -ear average
+ccounts receivable $16!
*ays sales
outstanding
$1, &/ =ales< &6!
&6!

1
1
]
!.1 days &&./ days Boor
2!! $
9 . 196 , 1 $
s 2nventorie
sold goods of ;ost
turnover
2nventory
/.AA6 9.26 Boor
&/! $
&/ , 1 $
assets 0i6ed
=ales
turnover
assets 0i6ed
.1!6 .16 +verage
9/! $
&6! $
assets 5otal
debt 5otal
ratio
*ebt
A.!( &.!( Boor
&/ , 1 $
/F $
=ales
income -et
in arg m
profit -et

.116 .66 Jarginal
9/! $
/F $
assets 5otal
income -et

assets on
>eturn
9.A9( F.F( Boor
b. 5he ratios do not show any particular strengths. Oowever, Hnilate does have a low
inventory turnover, higher than normal days sales outstanding, and poor return on assets.
+ccording to its 2!!F ratios, it appears Hnilate has li"uidity problems.
c. >atio 2!11 2!1! 5rend
;urrent ratio &.6 6 &.A 6 Worse
*ays sales outstanding &.2 days !.1 days Worse
2nventory turnover .6 6 /.F 6 Worse
0i6ed assets turnover &.F 6 .1 6 Worse
*ebt ratio /!.F( A.!( Worse
Brofit margin on sales &.6( .1( Worse
>eturn on assets 6.( 9.F( Worse
5his comparison shows that HnilateEs financial position worsened from 2!1! to 2!11.
6
;hapter 2
d. 2t would be helpful to know the future plans Hnilate has with respect to improving its
current financial position, introducing new products, li"uidating unprofitable investments,
and so on. Berhaps the fi6ed assets turnover ratio and return on assets figures are low
because the firm has e6panded its product distribution, and this process has a large cost
Pup frontQ with significant payoffs beginning in two or three years.
23/ a. 2ndustry
;ampsey +verage
!!! , &&! $
!!! , 6// $
s liabilitie ;urrent
assets ;urrent

1.FA6 2.!6
2A . 6/ , $
!!! , &&6 $
&6! < =ales
receivable +ccounts
9/.2 days &/.! days
/!! , 21 $
!!! , &/& , 1 $
s 2nventorie
sold goods of ;ost
/.6!6 /.66
/!! , F9 $
/!! , 6!9 , 1 $
assets 5otal
=ales
1.9!6 &.!6
/!! , 6!9 , 1 $
&!! , 29 $
=ales
income -et
1.9( 1.2(
/!! , F9 $
&!! , 29 $
assets 5otal
income -et
2.F( &.6(
!!! , &61 $
&!! , 29 $
e"uity ;ommon
income -et

9.6( F.!(
/!! , F9 $
/!! , /A6 $
assets 5otal
debt 5otal
61.F( 6!.!(
b. 0or ;ampsey, >,+ % BJ 6 5+ turnover % 1.9( 6 1.9 % 2.F(.
0or the industry, >,+ % 1.2( 6 &.! % &.6(.
c. ;ampseyEs days sales outstanding is more than twice as long as the industry average,
indicating that the firm should tighten credit or enforce a more stringent collection policy.
5he total assets turnover ratio is well below the industry average so sales should be
increased, assets decreased, or both. While ;ampseyEs profit margin is higher than the
industry average, its other profitability ratios are low compared to the industryNnet
income should be higher given the amount of e"uity and assets. Oowever, the company
seems to be in an average li"uidity position and financial leverage is similar to others in
the industry.
d. 2f ;ampsey e6perienced supernormal growth during the year, ratios based on this year
will be distorted and a comparison between them and industry averages will have little
meaning. Botential investors who look only at this yearEs ratios will be misled, and a
return to normal conditions ne6t year could hurt the firmEs stock price.
236 #1$ 5otal liabilities and e"uity % 5otal assets % $&!!,!!!.
9
;hapter 2
#2$ *ebt % #!./!$#5otal assets$ % #!./!$#$&!!,!!!$ % $1/!,!!!.
#&$ +ccounts payable % *ebt 1 Cong3term debt % $1/!,!!! 1 $6!,!!! % $F!,!!!.
#$ ;ommon stock % 5otal liabilities and e"uity 1 *ebt 1 >etained earnings
% $&!!,!!! 3 $1/!,!!! 3 $F9,/!! % $/2,/!!
#/$ =ales % 1./ 6 5otal assets % 1./ 6 $&!!,!!! % $/!,!!!
#6$ ;ost of goods sold % =ales#1 3 !.2/$ % $/!,!!!#.9/$ % $&&9,/!!
#9$ 2nventory % #;K=$</ % $&&9,/!!</ % $69,/!!.
#A$ +ccounts receivable % #=ales<&6!$#*=,$ % #$/!,!!!<&6!$#&6$ % $/,!!!.
#F$ #;ash . +ccounts receivable$<#+ccounts payable$ % !.A!6
;ash . +ccounts receivable % #!.A!$#+ccts payable$
;ash . $/,!!! % #!.A!$#$F!,!!!$
;ash % $92,!!! 1 $/,!!! % $29,!!!.
#1!$ 0i6ed assets% 5otal assets 1 #;ash . +ccts >ec. . 2nventories$
% $&!!,!!! 1 #$29,!!! . $/,!!! . $69,/!!$ % $16!,/!!.
239 a. 0innerty 2ndustry
0urniture +verage
111 $
&!& $
s liabilitie ;urrent
assets ;urrent
2.9&6 2.!6
/! $
1&/ $
assets 5otal
*ebt

ratio
*ebt
&!.!!( &!.!(
/ . $
/ . F $
2nterest
)B25

earned
interest 5imes
11.!!6 9.!6
;ost of goods sold $66!
2nventory
2nventories $1/F
turnover

.1/6 A./6
$ &6! < 9F/ #$
66 $
&6! < =ales
receivable +ccounts
*=, 2F.AF days 2.! days
19 $
9F/ $
assets 0i6ed
=ales
turnover
assets 0i6ed
/.16 6.! 6
/! $
9F/ $
assets 5otal
=ales

turnover
assets 5otal
1.996 &.! 6
9F/ $
29 $
=ales
income -et
margin
profit -et
&.!( &.!(
/! $
29 $
assets 5otal
income -et

assets total
on >eturn
6.!!( F.!(
A
;hapter 2
&1/ $
29 $
e"uity 5otal
income -et
e"uity
on turn >e
A./9( 12.F(
b. >,+ % Brofit margin 6 5otal assets turnover
( ! . 6 99 . 1 ( . &
/! $
9F/ $
9F/ $
29 $
assets 5otal
=ales
=ales
income -et



0innerty 2ndustry ;omment
Brofit margin &.( &.!( Kood
5otal assets turnover 1.A6 &.! 6 Boor
>eturn on total assets 6.!( F.!( Boor
c. +nalysis of the *uBont e"uation and the set of ratios shows that the turnover ratio of
sales to assets is "uite low. )ither sales should be increased at the present level of
assets, or the current level of assets should be decreased to be more in line with current
sales. 5hus, the problem appears to be in the balance sheet accounts.
d. 5he comparison of inventory turnover ratios shows that other firms in the industry seem
to be getting along with about half as much inventory per unit of sales as 0innerty. 2f
0innertyEs inventory could be reduced this would generate funds that could be used to
retire debt, thus reducing interest charges and improving profits, and strengthening the
debt position. 5here might also be some e6cess investment in fi6ed assets, perhaps
indicative of e6cess capacity, as shown by a slightly lower than average fi6ed assets
turnover ratio. Oowever, this is not nearly as clear3cut as the over3investment in
inventory.
e. 2f 0innerty had a sharp seasonal sales pattern, or if it grew rapidly during the year, many
ratios might be distorted. >atios involving cash, receivables, inventories, and current
liabilities, as well as those based on sales, profits, and common e"uity, could be biased.
2t is possible to correct for such problems by using average rather than end3of3period
figures.
23A a. Oere are ;aryMs base case ratios and other data as compared to the industry #$
thousands, e6cept per share values$'
;ary 2ndustry ;omment

;+ 3 2nventory $1, !/ $AF
@uick
ratio
;urrent liabilities $6!2

!.A6 1.!6 Weak

;urrent assets $1, !/
;urrent
ratio
;urrent liabilities $6!2
2.&6 2.96 Weak

;ost of goods sold $&,/A!
2nventory
%
turnover
2nventories $AF
.!6 /.A6 Boor

+ccounts receivable $&F
*=,
=ales< &6! #$,2F!< &6!$
&6.A days &2.! days Boor
F
;hapter 2

=ales $,2F!
0i6ed assets
turnover
0i6ed assets $2&A $1&2 $61

+ +
1!.!6 1&.!6 Boor

=ales $,2F!
5otal assets

turnover
5otal assets $1,A&6
2.&6 2.66 Boor

-et income $1!A.!A
>eturn on

total assets
5otal assets $1,A&6
/.F( F.1( Bad

-et income $1!A.!A
>eturn on
e"uity
5otal e"uity $/9/ $2/.91!

+
1&.1( 1A.2( Bad

*ebt $6!2 !.2F
*ebt

ratio
5otal assets $1,A&6
+
/.A( /!.!( Oigh

-et income $1!A.!A
-et profit
margin
=ales $,2F!
2./( &./( Bad
)B= $.91 n.a. 33
=tock Brice $2&./9 n.a. 33
B<) ratio /.!6 6.!6 Boor

Jarket value per share $2&./9
J<B ratio
Book value per share #$/9/ $2/.91$< 2&

+
!.6/ n.a. 33
;ary appears to be poorly managedNall of its ratios are worse than the industry
averages, and the result is low earnings, a low B<), a low stock price, and a low J<B ratio.
5he company needs to do something to improve.
b. + decrease in the inventory level would improve the inventory turnover, total assets
turnover, and >,+, all of which are too low. 2t would have some impact on the current
ratio, but it is difficult to say precisely how that ratio would be affected. 2f the lower
inventory level allowed ;ary to reduce its current liabilities, then the current ratio would
improve. 5he lower cost of goods sold would improve all of the profitability ratios and, if
dividends were not increased, would lower the debt ratio through increased retained
earnings. +ll of this should lead to a higher market<book ratio and a higher stock price.
23F Computer-Related Problem
a. 5he revised data and ratios are shown below'
2-BH5 *+5+' D)R ,H5BH5'
;ary 2ndustry
;ash $ A,/29 @uick 1.2 1.!
+<> &F/,!!! ;urrent &.! 2.9
2nventories 9!!,!!! 2nv. turn. .F /.A
Cand and bldg 2&A,!!! *=, && &2
Jachinery 1&2,!!! 0.+. turn. A.& 1&.!
,ther 0.+. 1/!,!!! 5.+. turn. 2./ 2.6
>,+ 1!./( F.1(
+ccts ? -otes Bay. $ 29/,!!! >,) 1F.F( 1A.2(
+ccruals 12!,!!! 5*<5+ 9.!( /!.!(
Cong3term debt !,2F! BJ .2( &./(
;ommon stock /9/,!!! )B= $9.9A n.a.
>etained earnings &2/,2&9 =tock Brice $6.6A n.a.
B<) ratio 6.! 6.!
5otal assets $ 1,6FF,/29 J<B 1.1F n.a.
5otal claims $ 1,6FF,/29
1!
;hapter 2
2!!A >et. earnings 16A,1/2
2ncome statement
=ales $ ,2F!,!!!
;ost of K.=. &,/!,!!!
+dm. ? sales e6p. 2A,99/
*epreciation 1/F,!!!
Jisc. 1&,!!!
-et income $ 19A,F&/
B<) ratio 6.!
-o. of shares 2&,!!!
;ash dividend $ !.F/
Hnder these new conditions, ;ary ;orporation looks much better. 2ts turnover ratios are still
low, but its >,+ and >,) are above the industry average, its estimated B<) ratio is better, and
its stock price is anticipated to double. 5here still is room for improvement, but the company is
in much better shape.
b. 5he financial statements and ratios for the scenario in which the cost of goods sold decreases
by an additional $12/,!!! are shown ne6t. +s you can see, the profit ratios are "uite high and
the stock price has risen to $66.2.
2-BH5 *+5+' D)R ,H5BH5'
;ary 2ndustry
;ash $ 1/F,/29 @uick 1. 1.!
+<> &F/,!!! ;urrent &.2 2.9
2nventories 9!!,!!! 2nv. turn. .A /.A
Cand and bldg 2&A,!!! *=, && &2
Jachinery 1&2,!!! 0.+. turn. A.& 1&.!
,ther 0.+. 1/!,!!! 5.+. turn. 2. 2.6
>,+ 1.&( F.1(
+ccts ? -otes Bay. $ 29/,!!! >,) 26.!( 1A.2(
+ccruals 12!,!!! 5*<5+ /.!( /!.!(
Cong3term debt !,2F! BJ /.F( &./(
;ommon stock /9/,!!! )B= $11.! n.a.
>etained earnings !!,2&9 =tock Brice $66.2 n.a.
B<) ratio 6.! 6.!
5otal assets $ 1,99,/29 J<B 1./6 n.a.
5otal claims $ 1,99,/29
2!!A >et. earnings 16A,1/2
2ncome statement
=ales $ ,2F!,!!!
;ost of K.=. &,&2/,!!!
+dm. ? sales e6p. 2A,99/
*epreciation 1/F,!!!
Jisc. 1&,!!!
-et income $ 2/&,F&/
B<) ratio 6.!
-o. of shares 2&,!!!
;ash dividend $ !.F/
c. 5he financial statements and ratios for the scenario in which the cost of goods sold increases
by $12/,!!! over the revised estimate are shown ne6t. +s you can see, profits would decline
11
;hapter 2
sharply. 5he >,) would drop to 12.6 percent, )B= would fall to $./2, the stock price would
drop to $29.11, and the J<B ratio would be only !.96.
2-BH5 *+5+' D)R ,H5BH5'
;ary 2ndustry
;ash $ F,/29 @uick 1.! 1.!
+<> &F/,!!! ;urrent 2.A 2.9
2nventories 9!!,!!! 2nv. turn. /.1 /.A
Cand and bldg 2&A,!!! *=, && &2
Jachinery 1&2,!!! 0.+. turn. A.& 1&.!
,ther 0.+. 1/!,!!! 5.+. turn. 2.6 2.6
>,+ 6.( F.1(
+ccts ? -otes Bay. $ 29/,!!! >,) 12.6( 1A.2(
+ccruals 12!,!!! 5*<5+ F.2( /!.!(
Cong3term debt !,2F! BJ 2.( &./(
;ommon stock /9/,!!! )B= $./2 n.a.
>etained earnings 2/!,2&9 =tock Brice $29.11 n.a.
B<) ratio 6.! 6.!
5otal assets $ 1,62,/29 J<B !.96 n.a.
5otal claims $ 1,62,/29
2!!A >et. earnings 16A,1/2
2ncome statement
=ales $ ,2F!,!!!
;ost of K.=. &,/9/,!!!
+dm. ? sales e6p. 2A,99/
*epreciation 1/F,!!!
Jisc. 1&,!!!
-et income $ 1!&,F&/
B<) ratio 6.!
-o. of shares 2&,!!!
;ash dividend $ !.F/
d. ;omputer models allow us to analy:e "uickly the impact of operating and financial
decisions on the firmMs overall performance. + firm can analy:e its financial ratios under
different scenarios to see what might happen if a decision, such as the purchase of a new
asset, did not produce the e6pected results. 5his gives the managers some idea about
what might happen under the best and worst cases and helps them to make better
decisions.
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