Calculate the following debt an

Pg. 90 compa

1. Debt
P2-17 The relationship between financial leverage and profitability Pelican Paper, Inc., and
Timberland Forest, Inc., are rivals in the manufacture of craft papers.

Some financial statement values for each company follow. Use them in a ratio analysis
that compares the firms' financial leverage and profitability.

2. Times interes
Item Pelican Paper, Inc. Timberland Forest, Inc.
TOTAL ASSETS $ 10,000,000.00 $ 10,000,000.00
EQUITY $ 9,000,000.00 $ 5,000,000.00
Calculate the following prof
TOTAL LIABILITIE $ 1,000,000.00 $ 5,000,000.00 compa

ANNUAL INTEREST$ 100,000.00 $ 500,000.00 1. Operating p

ANNUAL SALES $ 25,000,000.00 $ 25,000,000.00
UAFIR $ 6,250,000.00 $ 6,250,000.00
NET UTILITY $ 3,690,000.00 $ 3,450,000.00
2. Net prof

In what way has the larger debt of Timberland Forest made it more profitable than
Pelican Paper?

Debt allows companies companies to leverage existing funds 3. Return on

 What are the risks that Timberland's investors undertake when they choose to purchase
its stock instead of Pelican's?

Since Timberland has more debt, it might not be able to pay it back

c.
Calculate the following debt and coverage ratios for the two
companies.

1. Debt ratio
Pelican Timberland

TOTAL LIABILITIES = 10% 50%

TOTAL ASSETS

2. Times interest earned ratio

Pelican Timberland
UAFIR
= 62.50 12.50
INTERES ANUAL

Calculate the following profitability ratios for the two

companies.
1. Operating profit margin 4. Return on common equity
Pelican Timberland Pelican
UTILIDAD OPERATIVA NET UTILITY
= 25% 25% = 41%
VENTAS ANUALES EQUITY

2. Net profit margin

NET UTILITY = Pelican Timberland
ANNUAL SALES
15% 14%

3. Return on total assets

 NET UTILITY Pelican Timberland
=
TOTAL ASSETS
37% 35%
uity
Timberland

69%
Pg. 90
P2-18 Ratio Proeficiency McDougal Printing, Inc., had sales totaling $40,000,000 in fiscal year
2019. Some ratios for the company are listed below. Use this information to determine
the dollar values of various income statement and balance sheet accounts as requested.

McDougal Printing, Inc.

Year Ended December 31, 2019

Sales $ 40,000,000.00
MARGINAL UTILITY 80%
OPERATING UTILITY 35%
NET UTILITY 8%
ROA 16%
ROE 20%
Total assets turnover 2
Average Collection Period 62.2 days
AVERAGE DAILY SALES
Calculate values for the following:

Gross Profit / Marginal Utility $ 32,000,000

Costs of Goods Sold $ 8,000,000

Operating Income $ 14,000,000

Operating Expenses $ 18,000,000

Net Utility $ 3,200,000.00

ROA
Total Assets $ 20,000,000.00
0.16 $ 6,400,000.00 0.16

Total Equity $ 16,000,000.00

ROE

Accounts Receivable $ 6,911,111.11

 AR
ACP =
Sales /360 $ 111,111.11