honeycfa

Adams Co.'s common sized balance sheet shows that:

• Current Liabilities = 20%
• Equity = 45%
• Current Assets = 45%
• Total Assets = $2,000

What are Adams' long-term debt to equity ratio and working capital?

        Debt to Equity    Working Capital

A) 0.78   $500

B) 0.78   $250

C) 1.22  $500

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If equity equals 45% of assets, and current liabilities equals 20%,  then long-term debt must be 35%.
Long-Term Debt / Equity = 0.35 / 0.45 = 0.78

Working capital = CA ? CL = 45% - 20% = 25% of assets
WC = 2,000(0.25) = $500

honeycfa

Given the following income statement:

Net Sales	200
Cost of Goods Sold	55
Gross Profit	145
Operating Expenses	30
Operating Profit (EBIT)	115
Interest	15
Earnings Before Taxes (EBT)	100
Taxes	40
Earnings After Taxes (EAT)	60

What are the interest coverage ratio and the net profit margin?

Interest Coverage Ratio

Net Profit Margin

A) 2.63 0.30

B) 0.57 0.56

C) 7.67 0.30

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Interest coverage ratio = (EBIT / interest expense) = (115 / 15) = 7.67

Net profit margin = (net income / net sales) = (60 / 200) = 0.30