FIN3301 Chapter 3 GHA

Name: __________________________________________________ Date; ________________

1. (See the eText on p. 81). What effect would the following actions have on Philippe Corporation’s

current ratio? Provide your reasoning. Hand-write your responses (no copying, please).

a. Starting 2015 Current Ratio = _________________

b. $100 Inventory is purchased with cash.

c. A supplier is paid $100 with cash.

d. A short-term bank loan of $100 is repaid with cash.

e. A long-term debt of $100 is paid off early.

f. A customer pays off a credit account of $100.

g. Inventory is sold for $100 at cost.

h. Inventory is sold for $200 – a profit of $100.

2. Explain the kind of information the following financial ratios provide about a firm. Hand-write all

responses.

a. Quick ratio –

b. Cash ratio

c. Total asset turnover

d. Equity multiplier

e. Long-term debt ratio

f. Times interest earned

g. Profit margin

h. Return on assets

i. Return on equity

j. Price-earnings

3. ABC Co. has net working capital of $2,000, current liabilities of $4,000, and inventory of $3,500.

What is ABC’s current ratio? What is their quick ratio? Show your setup.

4. DEF Co. has a sales of $20 million, total assets of $12 million, and total debt of $5 million. If the

profit margin is 6%, what is net income? What is ROA? What is ROE? Show your setup.