Here are simplified financial statements for Phone Corporation in a recent year:

Here are simplified financial statements for Phone Corporation in a recent year:

INCOME STATEMENT
(Figures in $ millions)
Net sales	$	12,400
Cost of goods sold		3,660
Other expenses		4,137
Depreciation		2,278
Earnings before interest and taxes (EBIT)	$	2,325
Interest expense		645
Income before tax	$	1,680
Taxes (at 30%)		504
Net income	$	1,176
Dividends	$	796

 

BALANCE SHEET
(Figures in $ millions)
	End of Year				Start of Year
Assets
Cash and marketable securities	$	796			$	150
Receivables		1,982				2,330
Inventories		147				198
Other current assets		827				892
Total current assets	$	3,037			$	3,570
Net property, plant, and equipment		19,893				19,835
Other long-term assets		4,136				3,690
Total assets	$	27,066			$	27,095
Liabilities and shareholders’ equity
Payables	$	2,484			$	2,960
Short-term debt		1,379				1,533
Other current liabilities		771				747
Total current liabilities	$	4,634			$	5,240
Long-term debt and leases		9,010				8,265
Other long-term liabilities		6,098				6,069
Shareholders’ equity		7,324				7,521
Total liabilities and shareholders’ equity	$	27,066			$	27,095

Calculate the following financial ratios for Phone Corporation: (Use 365 days in a year. Do not round intermediate calculations. Round your final answers to 2 decimal places.)
 

a.

Return on equity =	$1,176	= 0.1584, or 15.84%
	($7,324 + 7,521) / 2

b.

Return on assets =	$1,176 + 645 × (1 – 0.30)	= 0.0601, or 6.01%
	($27,066 + 27,095) / 2

c.

Return on capital =	$1,176 + 645 × (1 – 0.30)	= 12,400.0000, or 10.13%
	[($9,010 + 7,324) + ($8,265 + 7,521)] / 2

d.

Days in inventory =	$198	= 19.75 days
	$3,660 / 365

e.

Inventory turnover =	$3,660	= 18.48
	198

f.

Average collection period =	$2,330	= 68.58 days
	$12,400 / 365

g.

Operating profit margin =	$1,176 + 645 × (1 – .35)	= 0.1313, or 13.13%
	$12,400

h.

Long-term debt ratio =	$9,010	= 0.55
	$9,010 + 7,324

i.

Total debt ratio =	$4,634 + 9,010 + 6,098	= 0.73
	$27,066

j.

Times interest earned =	$2,325	= 3.60
	$645

k.

Cash coverage ratio =	$2,325 + 2,278	= 7.14
	$645

l.

Current ratio =	$3,037	= 0.66
	$4,634

m.

Quick ratio =	$81 + 1,982	= 0.45
	$4,634