Worksheet for FM

1. The only current asset possessed by a firm are: Cash birr 105,000, Inventories birr 560,000 and
Accounts Receivable birr 420,000. If the current ratio for the firm is 2:1, determine its current
liabilities and calculate the firm's quick ratio.
2. At the close of the year a company has inventory of birr 150,000 and cost of goods sold for birr
975,000. If the company's turnover ratio is 5, determine the opening balance of the inventory
3. Assume that the industry average of fixed asset turnover of MITUManufacturing Company
is 2.50 times and the total asset turnover is 2 times. Net sales for the year is 250,000 and 95%
of the total assets of the organization is fixed. Assume further that the production manager
requests additional fund for the purchase of fixed assets that he thinks could increase the
profitability of the company. Given no impact of depreciation, and if you are the financial
manager of MITUManufacturing Company, what should be your reaction towards this
proposal? Why?
4. Complete the following financial statements of Omega Company on the basis of the ratios
given below.
Omega Company
Profit and loss account
For the year ended June 30 2001
Sales 2,000,000
Cost of Goods Sold 600,000
Gross Profit 1,400,000
Operating Expenses 1,190,000
Earning Before Interest and Tax -
Debenture Interest 10,000
Income Tax -
Net Profit -

Omega Company
Balance sheet
 For the year ended June 30 2001
Assets Liabilities
Cash - Sundry creditors 60,000
Stocks - 10% Debentures -
Debtors 35,000 Total liabilities -
Total Current Assets - Reserve and Surplus -
Fixed Assets - Share Capital -
Total Assets - Total Liability and Equity -
Additional Information
A. Net Profit to Sale…………….. 5% D. Inventory Turnover …………. 15 times
B. Current Ratio………………… 1.5 E. Share Capital to Reserve…….. 4:1
C. Return on Net Worth ……….. 20 % F. Tax Rate…………………….. 50 %
Multiple Choice Questions
A. Travel Air emerging regional airline, earns 6 percent on total assets but has a turnover on
equity of 24 percent. What percent of the air line’s assets are financed with debt?
A. 30 % C. 75 %
B. 25 % D. 70 %
B. Chara Company has current ratio of 2.2 times, acid test ratio of 1.4 times and inventories of
birr 55,000. What will be its current assets?
A. 90,000 C. 155,000
B. 151,250 D. 68,750
3. Which of the following ratio indicate the most liquidity position of the company?
A. Liquidity ratio C. Profitability ratio
B. Activity ratio D. Debt management ratio
4. Which of these are concerned with financial statement analysis to assure the protection of the
rights of the public?
A. Investors C managers
B. Government D. All of the foregoing
5. The implication of high fixed assets turnover ratio relative to industry average is:
A. presence of idle capacity
B. Possibility to expand activities without requiring additional capital investment
C. Under investment in fixed assets
D. Presence of low sales volume
6. The starting point for financial forecasting is
A. Estimating sales revenue and expenses
B. Estimating level of investment in assets
C. Estimating the additional fund needed
D. None of the foregoing