Financial Management

Seatwork 1
Name: MARIAN VELITARIO
Year & Block: BSA 2-3
Vermillion’s French Bakery has a return on assets (ROA) of 10 percent and a return on equity
(ROE) of 14 percent. Vermillion’s total assets equal total debt plus common equity (that is,
there is no preferred stock). Furthermore, we know that the firm’s total assets turnover is 5.
Sales totaled P 200,000.
Look for:
1. Total AssetsTATO = Sales / Total Assets Total Equity = P 28,571. 43
5 = 200,000 / Total Assets Debt Ratio = Total Liabilities / Total Assets
Total Assets = Sales / Total Asset Turnover Debt Ratio = (Total Assets - Total Equity) /
Total Assets
Total Assets = 200,000 / 5
Debt Ratio = (40,000 - 28,571. 43) / 40,000
Total Assets = P 40,000
Debt Ratio = 11, 428.57 / 40,000
Debt Ratio = 0.2857 or 28.57%
2. Net IncomeROA = Net income / Total
Assets
10 % = Net income / 40,000 4. Net Profit MarginNet Profit Margin = Net
income / Sales
Net income = ROA x Total Assets
Net Profit Margin = 4,000 / 200,000
Net income = 10 % x 40,000
Net Profit Margin = 0.02 or 2%
Net income = P 4,000

5. Total LiabilitiesTotal Liabilities = Total

3. Debt RatioTotal Equity
Assets - Total Equity
ROE = Net income / Total Equity
Total Liabilities = 40,000 - 28,571. 43
14% = 4,000 / Total Equity
Total Liabilities = P 11,428.57
Total Equity = 4,000 / 14%
 Financial Management
Seatwork 2
Name: MARIAN VELIATRIO
Year&Block: BSA 2-3

Part 1: Tiye Technologies recently reported the following balance sheet in its annual report (all
numbers are in millions of dollars):

Cash $ 100 Accounts payable $ 300

Accounts receivable 300 Notes payable 500
Inventory 500 Total current liabilities $ 800
Total current assets $ 900 Long-term debt 1,500
Total debt $2,300
Common stock 500
Retained earnings 400
Net fixed assets 2,300 Total common equity $ 900
Total assets $3,200 Total liabilities and equity $3,200

Tiye also reported sales revenues of $4.5 billion and a 20 percent ROE for this same year.
What is Tiye’s ROA? (Show your solution)

ROA = Net Income / Assets

Total Assets = $3,200,000,000
ROE = Net Income / Common equity = 0.20, with Common equity = $900,000,000
0.20 = Net income / $900,000,000
Net income = $18 0,000,000
ROA = $18 0,000,000 / $3,200,000,000 = 0.05625, or 5.625%

Part 2: Tiye Technologies is always looking for ways to expand their business. A plan has been
proposed that would entail issuing $300 million in notes payable to purchase new fixed
assets (for this problem, ignore depreciation).

If this plan were carried out, what would Tiye’s current ratio be immediately following the
transaction? (Show your solution)
Solution:
Current Ratio = Total Current Assets / Total Current Liabilities
Current Ratio = $900,000,000 / ($800,000,000 + $300,000,000)
Current Ratio = 0.818

In this situation, issuing $300 million in notes payable to acquire new fixed assets will increase
Tiye's current liabilities. However, it will not have a direct impact on current assets because the
deal involves the acquisition of fixed assets, which are not classified as current assets."