Case Scenario: Use the financial statements below to answer questions 1-6 that follow. Be sure to show your work and to indicate your final answers clearly. For ratios, indicate whether the answer is in percent (%), times (x), dollars ($), or some other units, and round to two decimal places. Assume the company uses a 360 day year for accounting and finance purposes. The company has no preferred stock.
Balance Sheet
Cash $ 20,000
Marketable Securities 80,000
Accounts Receivable 1,000,000
Inventory 3,500,000
Gross Plant & Equipment 5,000,000
Less: Accumulated Depreciation 2,000,000
Net Plant & Equipment 3,000,000
Total Assets $7,600,000
Accounts Payable $1,000,000
Accrued Expenses 200,000
Notes Payable (Current) 800,000
Long Term Bonds (at 10% interest) 2,000,000
Common Stock (100,000 shares, par $10) 1,000,000
Retained Earnings 2,600,000
Total Liabilities and Stockholders’ Equity $7,600,000
Income Statement
Sales (80% on credit) $9,000,000
Fixed Costs 2,400,000
Variable Costs (@20% of price) 1,800,000
EBIT $4,800,000
Interest Paid 800,000
EBT $4,000,000
Taxes (@ 40%) 1,600,000
Net Income (EAT) $2,400,000
Dividends 400,000
Increase in Retained Earnings $2,000,000
Note: Fixed costs include annual lease expense of $200,000 and annual depreciation of $600,000. The company is obligated to make annual principal payments of $250,000.
Question 1. What is the company’s break-even point, in sales dollars?
Question 2. What is the company’s cash break-even point, in sales dollars?
Question 3. What is the company’s current ratio?
Question 4. What is the company’s total asset turnover?
Question 5. What is the company’s debt-to-assets ratio?
Question 6. What is the company’s fixed charge coverage?