Problem 3-3

Balance sheet analysis

Complete the balance sheet and sales information in the
table that follows for Isberg Industries using the following
financial data:
Debt ratio: 50%
Quick ratio: 0.8 X
Total asset turnover: 1.5 X
Days sales outstanding: 36 days
(A/R collection period is 36 days)
(A/R turnover ratio ?)
Gross profit margin on sales; (Sales COGS)/Sales = 25%
Inventory turnover ratio: 5 X
Balance sheet
Cash
8)
Accounts payable
Account receivable 5) Long-term debt
Inventories _ 4)
Common stock
___7)____
Fixed assets ___9)___ Retained earnings
Total assets $300,000
Sales

_ 2)__

6)
$60,000
$97,500

Total Liabilities and equity _1)_

Cost of goods sold

3)

1) TA = TL & E = $300,000
2) TA turnover ratio =1.5 X
Sales/TA = 1.5 X.
Sales = TA times 1.5
Sales =$3000,000 X 1.5 = $450,000
3) Gross profit margin = 25%
COGS = 75% of sales
COGS = ($450,000)(0.75) =$337,500
4) Inventory turnover = COGS/INV = 5
inventory = COGS/5 =$67,500
5) DSO = 36 days
Accounts receivable in $ is daily sales times
36 days
($450,000/360) X 36 days = $45,000
6) Debt ratio = 0.5
Debt = (TA)(0.5) Total debt = $15,000
A/P + Long-term debt = $15,000
A/P = $15,000 - $60,000 = $90,000
7) common stock = Total Liabilities and C/S - Total
debt - Retained earning
$300,000 - $150,000 - $97,000 = $52,500
8) Quick ratio = (Cash + A/R)/A/P
(Cash + $45,000)/$90,000 = 0.8
Cash + $45,000 = ($90,000)(0.8)
Cash + $45,000 = $72,000
Cash = $27,000
9) Fixed assets = Total assets all other assets
= $300,000 ($27,000 + $45,000 + $67,500)
= $160,500

3-4)

Finnerty Furniture

Current ratio = $303/$111 = 2.73 X

Debt ratio = $135/$450 = 30%
EBIT/Interest = $49.5/$4.5 = 11.0 X
DSO = $66/daily sales
= $66/2.21 = 28.89 days
FA turnover ratio = Sales/FA
= $795/$147 = 5.41 X
TA turnover ratio = $795/$450= 1.77 X
Net profit margin = (Net Income)/Sales
= $27/$795 = 3.4%

Ind Ave.
2.0 X
30%
7.0 X
24 days
6.0 X
3.0 X
3.0%