Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
15th Edition
ISBN: 9780134476315
Author: Chad J. Zutter, Scott B. Smart
Publisher: PEARSON
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Chapter 3, Problem 3.21P
Learning Goal 4
P3-21 Analysis of debt ratios Financial information from fiscal year 2016 for two companies competing in the cosmetics industry—The Estee Lauder companies and e.l.f. Beauty Inc.—appears in the table below All dollar values are in thousands.
| Estee Lauder | e.l.f. Beauty | |
| Total assets | $9,223,300 | $414,729 |
| Total liabilities | 5,636,000 | 273,867 |
| EBIT | 1,625,900 | 26,095 |
| Interest expense | 70,700 | 16,283 |
- a. Calculate the debt ratio and the times interest earned ratio for each company. In what way are these companies similar in terms of their debt usage, and in what way are they very different?
- b. Calculate the ratio of interest expense to total liabilities for each company. Conceptually, what do you think this ratio is trying to measure? Why are the values of this ratio dramatically different for these two firms? Suggest some reasons.
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A condensed balance sheet for CSV Corp. is provided below.
Calculate the current and quick ratios.
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Recalculate the company's current and quick ratios.
CSV Corp. balance sheet (amounts in thousands):
Cash
Accounts receivable
Inventory
Total current assets
Property, plant and equipment
Total assets
2017
$1,400
3,600
5.800
10,800
10,200
$ 21.000
Accounts payable
Accrued expenses payable
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Long-term debt
Shareholders' equity
Total liabilities and shareholders' equity
Calculated current ratio:
Calculated quick ratio:
Assume $15,000 borrowed using long-term debt:
Revised current ratio:
Revised quick ratio:
$ 4,200
6.400
10,600
4,400
6,000
$ 21.000
OBJECTIVE: To enable learners to utilize financial ratios as a mechanism to evaluate the firm's financial
performance and identify areas for making decisions for improvement
REQUIREMENT: Financial Statement Analysis
Question
Refer to the following financial statements of Delima Corporation for 2019 and 2020:
Delima Corporation
Income Statements
For the year ended 31 December (in millions)
2020
$13,198
7,750
2019
$12,397
7,108
Net sales
Cost of goods sold
Gross profit
Selling and administrative expenses
Income from operations
5,448
5,289
3,472
3,299
1,976
1,990
Interest expense
233
248
Other (income) expense, net
11
1,732
503
1,229
Income before income taxes
1,742
Income tax expense
502
Net income
1,240
Delima Corporation
Balance Sheets
31 December (in millions)
2020
2019
Assets
Current assets
Cash
$460
$444
Accounts receivables (net)
1,188
1,132
1,190
1,056
225
2,915
3,128
Inventories
Other current assets
247
Total current assets
3,027
3,281
Property (net)
5,593
$11,901
Other assets…
JUST DEW IT CORPORATION2017 and 2018 Balance Sheets
Assets
Liabilities and Owners' Equity
2017
2018
2017
2018
Current assets
Current liabilities
Cash
$ 10,150
$ 10,350
Accounts payable
$ 74,500
$ 61,250
Accounts receivable
27,100
27,250
Notes payable
48,500
49,250
Inventory
62,900
63,500
Total
$ 123,000
$ 110,500
Total
$ 100,150
$ 101,100
Long-term debt
$ 59,400
$ 64,900
Owners' equity
Common stock and paid-in surplus
$ 80,000
$ 80,000
Fixed assets
Retained earnings
171,750
192,700
Net plant and equipment
$ 334,000
$ 347,000
Total
$ 251,750
$ 272,700
Total assets
$ 434,150
$ 448,100
Total liabilities and owners' equity
$ 434,150
$ 448,100
Based on the balance sheets given for Just Dew It, calculate the following…
Chapter 3 Solutions
Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
Ch. 3.1 - Prob. 3.1RQCh. 3.1 - Describe the purpose of each of the four major...Ch. 3.1 - Prob. 3.3RQCh. 3.1 - Prob. 3.4RQCh. 3.2 - With regard to financial ratio analysis, how do...Ch. 3.2 - What is the difference between cross-sectional and...Ch. 3.2 - Prob. 3.7RQCh. 3.2 - Prob. 3.8RQCh. 3.3 - Under what circumstances would the current ratio...Ch. 3.3 - In Table 3.5, most of the specific firms listed...
Ch. 3.4 - To assess the firms average collection period and...Ch. 3.5 - What is financial leverage?Ch. 3.5 - What ratio measures the firms degree of...Ch. 3.6 - What three ratios of profitability appear on a...Ch. 3.6 - Prob. 3.15RQCh. 3.6 - Prob. 3.16RQCh. 3.7 - What do the price/earnings (P/E) ratio and the...Ch. 3.8 - Financial ratio analysis is often divided into...Ch. 3.8 - Prob. 3.19RQCh. 3.8 - What three areas of analysis are combined in the...Ch. 3 - For the quarter ended January 28, 2017, Kroger...Ch. 3 - Learning Goals 3, 4, 5 ST3-1 Ratio formulas and...Ch. 3 - Prob. 3.2STPCh. 3 - Prob. 3.1WUECh. 3 - Learning Goal 1 E3-2 Explain why the income...Ch. 3 - Prob. 3.3WUECh. 3 - Learning Goal 3 E3-4 Bluestone Metals Inc. is a...Ch. 3 - Learning Goal 6 E3-5 If we know that a firm has a...Ch. 3 - Financial statement account identification Mark...Ch. 3 - Learning Goal 1 P3-2 1ncome statement preparation...Ch. 3 - Prob. 3.3PCh. 3 - Learning Goal 1 P3-4 Calculation of EPS and...Ch. 3 - Prob. 3.5PCh. 3 - Prob. 3.6PCh. 3 - Learning Goals 1 P3-7 Initial sale price of common...Ch. 3 - Prob. 3.8PCh. 3 - Learning Goal 1 P3-9 Changes In stockholders...Ch. 3 - Learning Goals 2, 3, 4, 5 P3-10 Ratio comparisons...Ch. 3 - Learning Goal 3 P3-11 Liquidity management Bauman...Ch. 3 - Prob. 3.12PCh. 3 - Inventory management Three companies that compete...Ch. 3 - Accounts receivable management The table below...Ch. 3 - Prob. 3.15PCh. 3 - Learning Goal 4 P3-16 Debt analysis Springfield...Ch. 3 - Prob. 3.17PCh. 3 - Learning Goals 2, 3, 4 P3-18 Using Tables 3.1,...Ch. 3 - Learning Goals 5 P3-19 Common-size statement...Ch. 3 - The relationship between financial leverage and...Ch. 3 - Learning Goal 4 P3-21 Analysis of debt ratios...Ch. 3 - Learning Goal 6 P3-22 Ratio proficiency McDougal...Ch. 3 - Learning Goal 6 P3-23 Cross-sectional ratio...Ch. 3 - Learning Goal 6 P3-24 Financial statement analysis...Ch. 3 - Learning Goals 6 P3- 25 Integrative: Complete...Ch. 3 - Learning Goal 6 P3-26 DuPont system of analysis...Ch. 3 - Learning Goal 6 P3-27 Complete ratio analysis,...Ch. 3 - Spreadsheet Exercise The income statement and...
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