Problem 1: Effects of transactions on liquidity measures
Selected balance sheet accounts for Tibbetts Company on September 30, 2008, are as follows:
Cash................................................................................................. $ 32,000
Marketable securities......................................................................... 58,000
Accounts receivable, net.................................................................... 86,000
Inventory..............................................................................................90,000
Prepaid expenses................................................................................ 14,000
Total current assets $ 280,000
Accounts payable................................................................................ $ 98,000
Other accrued liabilities..................................................................... 22,000
Short-term debt................................................................................... 40,000
Total current liabilities $ 160,000
A) Calculate the working capital, current ratio, and acid-test ratio for Tibbetts Company as of September 30, 2008.
B) Summarized here are the transactions/events that took place during the fiscal year ended September 30, 2009. Indicate the effect of each item on Tibbetts Company’s working capital, current ratio, and acid-test ratio. Use + for increase, - for decrease, and (NE) for no effect.
Working Current Acid-test
Capital ratio ratio
1. Credit sales for the year amounted to $240,000
The cost of goods sold was $156,000
2. Collected accounts receivable, $252,000
3. Purchased inventory on account, $168,000
4. Issued 250 shares of common stock for $36 per share
5. Wrote off $7,000 of uncollectible accounts using
The allowance for bad debts.
6. Declared and paid a cash dividend, $20,000
7. Sold marketable securities costing $26,000 for
$31,000 in cash
8. Recorded insurance expenses for the year, $12,000
The premium for the policy was paid in June 2008
9. Borrowed cash on a short-term bank loan, $10,000
10. Repaid principal of $40,000 and interest of $3,000
On a long-term bank loan.
Problem 2: Ratio analysis comprehensive problem, 2006 data
This problem is based on the 2006 annual report of Intel Corporation.
a. Compute the following profitability measures for the year ended December 30, 2006:
1. Return on investment, based on net income (perform a DuPont analysis).
2. Return on equity, based on net income.
3. Price/earnings ratio. Use $20.25 as the year-end market price.
4. Divided yield.
5. Divided payout ratio.
b. Compute the following liquidity measures at December 30, 2006:
1. Working capital.
2. Current ratio.
3. Acid-test ratio.
c. Compute the following activity measures for the year ended December 30, 2006:
1. Number of days’ sales in accounts receivable, based on a 365-day year.
2. Number of days’ sales in inventory, based on a 365-day year.
3. Accounts receivable turnover.
4. Inventory turnover.
5. Turnover of net property, plant, and equipment.
d. Compute the following financial leverage measures at December 30, 2006:
1. Debt ratio.
2. Debt/equity ratio
3. Times interest earned.
e. Compute the following physical measures of Intel’s profitability at December 30, 2006:
1. Net revenues per employee.
2. Operating income per employee. (employees at year end in millions 94.1)