Question

The balance sheet and income statement shown below are for Pettijohn Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.

Balance Sheet (Millions of $)
Assets 2016
Cash and securities $ 1,554.0
Accounts receivable 9,660.0
Inventories 13,440.0
Total current assets $24,654.0
Net plant and equipment 17,346.0
Total assets $42,000.0
Liabilities and Equity Accounts payable $ 7,980.0
Notes payable 5,880.0
Accruals 4,620.0
Total current liabilities $18,480.0
Long-term bonds 10,920.0
Total liabilities $29,400.0
Common stock 3,360.0
Retained earnings 9,240.0
Total common equity $12,600.0
Total liabilities and equity $42,000.0
Income Statement (Millions of $) 2016
Net sales $58,800.0
Operating costs except depreciation $54,978.0
Depreciation $ 1,029.0
Earnings bef int and taxes (EBIT) $ 2,793.0
Less interest 1,050.0
Earnings before taxes (EBT) $ 1,743.0
Taxes $ 610.1
Net income $ 1,133.0
Other data:
Shares outstanding (millions) 175.00
Common dividends $ 509.83
Int rate on notes payable & L-T bonds 6.25%
Federal plus state income tax rate 35%
Year-end stock price $77.69
Required:
Refer to the data for Pettijohn Inc:
1. What is the firm's ROA?
2. What is the firm's current ratio?
3. What is the firm's quick ratio?
4. What is the firm's inventory turnover ratio?

Answer 1

1) 2.7%

2) 1.33

3) 0.61

4) 4.38

Step-by-step explanation:

1. What is the firm's ROA?

ROA (return on assets) = Net income/ Total Assets = $ 1,133/ $ 42,000 = 2.7%

2. What is the firm's current ratio?

Current ratio = current asset/ current liability = $24,654/$18,480 = 1.33

3. What is the firm's quick ratio?

Quick ratio = (current asset - Inventory - prepaid expense)/ current liability

= ($24,654 - 13,440 - 0)/ $18,480 = 0.61

4. What is the firm's inventory turnover ratio?

Inventory Turnover = Sales/Inventory = $58,800/ $13,440 = 4.38