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Essentials Of Investments
Found in: Page 477
Essentials Of Investments

Essentials Of Investments

Book edition 9th
Author(s) Zvi Bodie, Alex Kane, Alan Marcus, Alan J. Marcus
Pages 748 pages
ISBN 9780078034695

Short Answer

The financial statements for Chicago Refrigerator Inc. (see Tables 14.15 and 14.16 ) areto be used to compute the ratios a through h for 2013.

a. Quick ratio.

b. Return on assets.

c. Return on common shareholders’ equity.

d. Earnings per share of common stock

e. Profit margin.

f. Times interest earned.

g. Inventory turnover.

h. Leverage ratio.

a. 0.99

b. 36.4%

c. 42.6%

d. $1.8

e. 19.4%

f. 30

g. 4.2

i. 1.9

See the step by step solution

Step by Step Solution

Step 1: Calculation of quick ratio

Quick ratio = (Current assets - Inventories)/ Current liabilities

= $6,360 - $2,423 / $3,945

= 0.9979

Step 2: Calculation of ROA

ROA = EBIT / Assets

= Net income before tax + Interest expense / Average assets

= $2,259 + $78 / ($8,058 + $4,792) / 2

=.364

= 36.4%

Step 3: Calculation of Return on common shareholder’s equity

Preferred dividend= 0.1 x $25 x 18000 = $45000

Common equity in 2013 = $829 + $575 + $1949 = $3,353 thousand

Common equity in 2012 = $550 + $450 + $1368 = $2,368 thousand

ROE = Net income / Average shareholder’s equity

= $1,265 / ($3353 + $2366) / 2

=.426 or 42.6%

Step 4: Calculation of earning per shares

Earnings per share = Net income / Average common stock

= $1,265/ (829 + 550) / 2

=$1.834

Step 5: Calculation of profit margin

Profit Margin = EBIT / Sales

= ($2,259 + $78)/ $12,065

= .194

=19.4%

Step 6: Calculation of Times Interest earned

Times interest earned = EBIT / Interest Expense

=$2,259 + $78 / $78

=30

Step 7: Calculation of Inventory turnover 

Inventory turnover = Cost of goods sold / Average inventory

= $8048 / ($1415 + $2423) / 2

= 4.2

Step 8: Calculation of Leverage ratio

Leverage ratio = Average assets / Average equity

=($4792 + $8058) / 2 / ($2,868 + $3,803) / 2

= 1.9

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