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Date Submitted: 10/16/2012 03:17 PM
Chapter 3
3.1 Days Sales Outstanding
Greene Sisters has a DSO of 20 days. The company’s average daily sales are $20,000. What is the level of its accounts receivable? Assume there are 365 days in a year.
DSO = 20 Days, Daily sales $20K
DSO = Receivables
Average sales per day
Receivables = DSO X Average sales per day = 20 X $20K = $400,000
3.2 Debt Ratio
Vigo Vacations has an equity multiplier of 2.5. The company’s assets are financed with some combination of long-term debt and common equity. What is the company’s debtratio?
EM= 2.5
Debt/Assets = 1-1
--
Assets
--
Equity Multiplier
D/A = 1-1/2.5
D/A = 1-0.40 = 0.60 X 100 = 60%
3.3 Market/Book Ratio
Winston Washers’s stock price is $75 per share. Winston has $10 billion in total assets. Its balance sheet shows $1 billion in current liabilities, $3 billion in long-term debt, and $6 billion in common equity. It has 800 million shares of common stock outstanding. What is Winston’s market/book ratio?
Stock Price = $75
TA = $10B
CL= $1B
LT Debt = $3B
CE = $3B
Outstanding Shares=800M
BVPS = Com. Equity/Shares Outstanding
BVPS = 6 B/800M = 7.50
M/B ratio = Market Price per share/BVPS
M/B ratio = 0.75%/7.50 = 10
3.4 Price/Earnings Ratio
A company has an EPS of $1.50, a cash flow per share of $3.00, and a price/cash flow ratio of 8.0. What is its P/E ratio?
EPS = $1.50
CFPS = $3.00
P/CF = 8.0
PE ratio =?
P/CF = 8.0
P/$3.00 = 8.0
P = $3.00 X 8.0 = $24.00
P/EPS = $24/$1.50 = 16.0
3.5 Needham Pharmaceuticals has a profit margin of 3% and an equity multiplier of 2.0. Its sales are $100 million and it has total assets of $50 million. What is its ROE?
Common Equity = Total Assets ÷ Equity Multiplier = $50M ÷ 2.0 Common Equity = $25M
Net Income = Sales x Net Profit Margin = $100M x .03 = $3M
ROE = Net Income ÷ Common Equity = $3M ÷ $25M = 12%.
3.6 Du Pont Analysis...