Assignment 2

Prepared By:
GOLAM MAULA
073124030
FIN254
Section: 16

Prepared For:
Shahzada M Imran
Lecturer

North South University

FIN254
Assignment#2 (Based on Chapter 3)
Financial reports of South East Inc. for the year 2098 and 2099 are as follows. The amounts are
in thousand taka.

South East Inc.

2098 and 2099 Balance Sheets

Assets 2098 2099

Cash 18,270 22,150
A/R 12,315 13,865
Inventory 21,584 24,876
Total current assets 52,169 60,891
Fixed assets 168,326 184,735
Total assets: 220,495 245,626
Liabilities & Owners’ Equity:
Current liabilities
Accounts Payable 16,215 17,318
Notes Payable 8,000 10,000
Other 11,145 14,451
Total Currents liabilities 35,360 41,769
L-T debt 80,000 85,000
Owners equity
Common stock and pain-in surplus 20,000 20,000
Retained earnings 85,135 98,857
Total 105,135 118,857
Total liabilities and & owner’s equity 220,495 245,626

South East Inc.

2099 Income Statement

Sales 285,760
Cost of goods sold 205,132
Depreciation 21,950
Earnings before income and taxes 58,678
Interest paid 9,875
Taxable income 48,803
Taxes (35%) 17,081
Net Income 31,722
Dividends 18,000
Addition to retained earnings: 13,722
Please answer to the following questions using the above financial statements.

1. Prepare a common size balance sheet for both of the years.

2. Prepare a common base year balance sheet considering 2098 to be the base year.
3. Prepare a combined common size, common–base year balance sheet.
4. For each account on this company’s balance sheet show the change in the account during
2098 and note whether this change was a source or use of cash. Do your numbers add up and
make sense? Explain your answer for total assets as compared to your answer for liabilities
and owners equity.
5. Find out the following ratios:
a. Current ratio:
b. Quick ratio:
c. Cash ratio:
d. Total asset turnover:
e. Inventory turnover:
f. Receivables turnover:
g. Total debt ratio
h. Debt-equity ratio
i. Equity multiplier:
j. Times interest earned ratio:
k. Cash coverage ratio:
l. Profit margin:
m. Return on assets:
n. Return on equity:

Due Date: 13th June, 2010 (Sunday)

 Ans to the que No:1,2,3

South East Inc.

Common size
Common-Base Combined
Assets
2098 2099 Year 2098 Common size

Cash 8.3 9.01 1.21 1.08

A/R 5.6 5.7 1.13 1.02
Inventory 9.8 10.13 1.15 1.03
Total current assets 23.6 24.8 1.17 1.05
Fixed assets 76.4 75.2 1.09 0.98
Total assets: 100 100 1.11 1.00
Liabilities & Owners’ Equity:
Current liabilities
Accounts Payable 7.4 7.1 1.07 0.96
Notes Payable 3.6 4.1 1.25 1.14
Other 5.1 5.9 1.29 1.16
Total Currents liabilities 16.03 17 1.18 1.06
L-T debt 36.3 34.6 1.06 0.95
Owners equity
Common stock and pain-in surplus 9.1 8.2 1.00 0.90
Retained earnings 38.6 40.3 1.16 1.05
Total 47.7 48.4 1.13 1.02
Total liabilities and & owner’s equity 100 100 1.11 1.00

Ans to the que No:4

 South East Inc.

Assets 2098 2099

Cash +3880 Uses
A/R +1550 Uses
Inventory +3292
Total current assets +8722
Fixed assets +16409 Uses
Total assets: +25131
Liabilities & Owners’ Equity:
Current liabilities
Accounts Payable +1103 Source
Notes Payable +2000 Source
Other +3306
Total Currents liabilities +6409
L-T debt +5000 Source
Owners equity
Common stock and pain-in surplus 000
Retained earnings +13722 Source
Total +13722
Total liabilities and & owner’s equity +25131

Ans to que no.5

1. Current ratio = Current assets / Current liabilities

Current ratio 2006 = $52,169 / $35,360 = 1.48 times
Current ratio 2007 = $60,891 / $41,769 = 1.46 times

2. Quick ratio = (Current assets – Inventory) / Current liabilities

Quick ratio 2006 = ($52,169 – 21,584) / $35,360 = 0.86 times
Quick ratio 2007 = ($60,891 – 24,876) / $41,769 = 0.86 times

3. Cash ratio = Cash / Current liabilities

Cash ratio 2006 = $18,270 / $35,360 = 0.52 times
Cash ratio 2007 = $22,150 / $41,769 = 0.53 times

4. Total asset turnover = Sales / Total assets

Total asset turnover = $285,760 / $245,626 = 1.16 times

5. Inventory turnover = Cost of goods sold / Inventory

Inventory turnover = $205,132 / $24,876 = 8.25 times

6. Receivables turnover = Sales / Accounts receivable

Receivables turnover = $285,760 / $13,865 = 20.61 times
7. Total debt ratio = (Total assets – Total equity) / Total assets
Total debt ratio 2006 = ($220,495 – 105,135) / $220,495 = 0.52
Total debt ratio 2007 = ($245,626 – 118,857) / $245,626 = 0.52

8. Debt-equity ratio = Total debt / Total equity

Debt-equity ratio 2006 = ($35,360 + 80,000) / $105,135 = 1.10
Debt-equity ratio 2007 = ($41,769 + 85,000) / $118,857 = 1.07

9. Equity multiplier = 1 + D/E

Equity multiplier 2006 = 1 + 1.10 = 2.10
Equity multiplier 2007 = 1 + 1.07 = 2.07

10. Times interest earned = EBIT / Interest

Times interest earned = $58,678 / $9,875 = 5.94 times

11. Cash coverage ratio = (EBIT + Depreciation) / Interest

Cash coverage ratio = ($58,678 + 21,950) / $9,875 = 8.16 times

12. Profit margin = Net income / Sales

Profit margin = $31,722 / $285,760 = 0.1110 or 11.10%

13. Return on assets = Net income / Total assets

Return on assets = $31,722 / $245,626 = 0.1291 or 12.91%
14. Return on equity = Net income / Total equity
Return on equity = $31,722 / $118,857 = 0.2669 or 26.69%