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 6)

Account receivable 5) Long-term debt $60,000
Inventories _ 4) Common stock ___7)____
Fixed assets ___9)___ Retained earnings $97,500

Total assets $300,000 Total Liabilities and equity _1)_

Sales _ 2)__ 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 Ind Ave.

Current ratio = $303/$111 = 2.73 X 2.0 X

Debt ratio = $135/$450 = 30% 30%
EBIT/Interest = $49.5/$4.5 = 11.0 X 7.0 X
DSO = $66/daily sales
= $66/2.21 = 28.89 days 24 days
FA turnover ratio = Sales/FA
= $795/$147 = 5.41 X 6.0 X
TA turnover ratio = $795/$450= 1.77 X 3.0 X
Net profit margin = (Net Income)/Sales
= $27/$795 = 3.4% 3.0%