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Consider the following financial data for Smith Corp.:     Balance Sheet as of December 31, 2019               Cash $ 195,000   Accounts payable $ 94,000 Receivables   185,500   Short-term bank note   119,500 Inventories   214,500   Accruals   71,000   Total current assets $ 595,000     Total current liabilities $ 284,500         Long-term debt   462,500 Net plant & equip.   621,500   Common equity   469,500 Total assets $ 1,216,500   Total liab. & equity $ 1,216,500               Profit & Loss Statement for 2019   Industry Average Ratios               Net sales $ 1,265,000   Current ratio 1.9× Cost of sales   986,500   Quick ratio 1.2× Gross profit $ 278,500   Days sales outstanding 64 days Operating expenses   166,500   Inventory turnover 3.3×   EBIT $ 112,000   Total asset turnover 0.7× Interest expense   32,000   Net profit margin 9.1%   Pre-tax income $ 80,000   Return on assets 6.8% Income taxes (30%)   24,000   Return on equity 15.2% Net income $ 56,000   Debt-to-capital ratio 41%               Compared to its competitors, Smith...   a. obtains more of its capital from equity financing.   b. converts its receivables to cash more slowly.   c. is more likely to have trouble paying its short-term debts.   d. has a higher return on equity.   e. is using its total assets to generate sales more efficiently.

Consider the following financial data for Smith Corp.:     Balance Sheet as of December 31, 2019               Cash $ 195,000   Accounts payable $ 94,000 Receivables   185,500   Short-term bank note   119,500 Inventories   214,500   Accruals   71,000   Total current assets $ 595,000     Total current liabilities $ 284,500         Long-term debt   462,500 Net plant & equip.   621,500   Common equity   469,500 Total assets $ 1,216,500   Total liab. & equity $ 1,216,500               Profit & Loss Statement for 2019   Industry Average Ratios               Net sales $ 1,265,000   Current ratio 1.9× Cost of sales   986,500   Quick ratio 1.2× Gross profit $ 278,500   Days sales outstanding 64 days Operating expenses   166,500   Inventory turnover 3.3×   EBIT $ 112,000   Total asset turnover 0.7× Interest expense   32,000   Net profit margin 9.1%   Pre-tax income $ 80,000   Return on assets 6.8% Income taxes (30%)   24,000   Return on equity 15.2% Net income $ 56,000   Debt-to-capital ratio 41%               Compared to its competitors, Smith...   a. obtains more of its capital from equity financing.   b. converts its receivables to cash more slowly.   c. is more likely to have trouble paying its short-term debts.   d. has a higher return on equity.   e. is using its total assets to generate sales more efficiently.

Cornerstones of Financial Accounting
Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
Chapter9: Long-term Liabilities
Section: Chapter Questions
Problem 89E: Ratio Analysis Rising Stars Academy provided the following information on its 2019 balance sheet and...
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  1. Consider the following financial data for Smith Corp.:

     
     
    Balance Sheet as of December 31, 2019
                 
    Cash
    $
    195,000
    		   Accounts payable $
    94,000
    Receivables  
    185,500
    		   Short-term bank note  
    119,500
    Inventories  
    214,500
    		   Accruals  
    71,000
      Total current assets
    $
    595,000
    		     Total current liabilities $
    284,500
            Long-term debt  
    462,500
    Net plant & equip.  
    621,500
    		   Common equity  
    469,500
    Total assets
    $
    1,216,500
    		   Total liab. & equity $
    1,216,500
                 
    Profit & Loss Statement for 2019
    		  
    Industry Average Ratios
                 
    Net sales
    $
    1,265,000
    		   Current ratio
    1.9×
    Cost of sales  
    986,500
    		   Quick ratio
    1.2×
    Gross profit
    $
    278,500
    		   Days sales outstanding
    64 days
    Operating expenses  
    166,500
    		   Inventory turnover
    3.3×
      EBIT
    $
    112,000
    		   Total asset turnover
    0.7×
    Interest expense  
    32,000
    		   Net profit margin
    9.1%
      Pre-tax income
    $
    80,000
    		   Return on assets
    6.8%
    Income taxes (30%)  
    24,000
    		   Return on equity
    15.2%
    Net income
    $
    56,000
    		   Debt-to-capital ratio
    41%
                 


    Compared to its competitors, Smith...

      a.

    obtains more of its capital from equity financing.
      b.

    converts its receivables to cash more slowly.
      c.

    is more likely to have trouble paying its short-term debts.
      d.

    has a higher return on equity.
      e.

    is using its total assets to generate sales more efficiently.
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