Case 16: Financial Ratio Analysis

Below are Income Statement and Comparative Balance Sheets from

Netquest Corporation.

Income Statement
Netquest Corporation
For the year ended 12/31/2009
Net Sales $
28,140
Cost of Good Sold 19,05
6
Gross Margin 9,08
4

Salary Expense 2,30

0
Rent expense 1,00
0
Depreciation expense 85
0
Interest expense 25
0
Income before income 4,68
tax 4
Income tax expense 1,8
(40%) 74
Net income $
2,810

Comparative Balance Sheet

Netquest Corporation
12/31/0 12/31/0 12/31/0 12/31/0
9 8 9 8
Assets Liabilities
Cash 16,332 10,500 Acct Payable 3,072 3,000
Account 7,500 6,200 Salary payable 800 500
Receivable
Inventory 8,780 5,280 Total current 3,872 3,500
liabilities
Prepaid rent 2,000 3,000 Long-term debt 5,000 5,000
Total current 34,612 24,980 Total liabilities 8,872 8,500
Asset
PP&E 9,900 8,500 Stockholder’s
 equity
(Accumulated Common stock 23,500 16,500
Depreciation) (5350) (4,500) Retained 6,790 3,980
earnings
Net PPE 4,550 4,000 Total 30,290 20,480
stockholder’s
equity
Total Assets 39,162 28,980 Total liabilities 39,162 28,980
and equity

Other Information:

• The company has 10,000 shares outstanding as of

12/31/2009.

Required: Calculate the following ratios. Please round to 2 decimal

points.

1) Calculate the Return on Assets ratio for 2009 reflecting the

adjustment of interest expense (net of tax), assuming tax
rate is 30%.
2) What does Return on Asset ratio (calculated above) tell us?
3) Calculate the Current Ratio as of December 31, 2009.
4) Calculate the Inventory turnover ratio for 2009.
5) Calculate the Basic Earnings Per Share (EPS) for 2009.