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Fall 2026-91369-202690-FIN362-01 - Introduction to FinanceHidden Course
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When a company borrows more money by either (i) issuing more of its bonds or (ii) borrowing from a short-term lender, its times interest earned and fixed charge coverage ratios will decrease. For this scenario, assume that the income amount for each ratio (the numerator) stays the same.
When analyzing a company's financial statement ratios, it is best to compare the ratios to industry averages and over multiple years.
Ratio analysis can be useful for
Differences in income statements between companies can be a result of differences in financial reporting such as deferring recognition of sales or revenues until payment is received.
| ASSETS | |
|---|---|
| Cash | $ 50,000 |
| Accounts receivable | 70,000 |
| Inventory | 110,000 |
| Net plant and equipment | 220,000 |
| Total assets | $ 450,000 |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| Accounts payable | $ 70,000 |
| Accrued expenses | 50,000 |
| Long-term debt | 130,000 |
| Common stock | 70,000 |
| Paid-in capital | 40,000 |
| Retained earnings | 90,000 |
| Total liabilities and stockholders’ equity | $ 450,000 |
| Sales (all on credit) | $ 875,000 |
|---|---|
| Cost of goods sold | 600,000 |
| Gross profit | $ 275,000 |
| Sales and administrative expenses | 30,000 |
| Depreciation | 55,000 |
| Operating profit | $ 190,000 |
| Interest expense | 25,000 |
| Profit before taxes | $ 165,000 |
| Taxes (30%) | 49,500 |
| Net income | $ 115,500 |
Refer to the tables above. Compute Megaframe's after-tax profit margin.
A firm only has current assets and fixed assets. Its current assets are $100,000 and total assets are $300,000. The firm's sales are $900,000. The firm's fixed asset turnover is
Which profitability ratio does the following equation represent?
Net income ÷ sales
A short-term creditor would be most interested in