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    Answer 5 - " Modern Appliances Corporation"

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    Rheu Reyes
    Modern Appliances Corporation reported its financial results for the fiscal year ended December 31, 2017. The company generated $5.4 billion in net sales and $430 million in net earnings. Assets totaled $4.4 billion, including $754.7 million in net fixed assets. Liabilities included $1.2 billion in long-term debt and $1.6 billion in current liabilities. Key financial ratios were calculated to analyze the company's liquidity, asset use, debt levels, profitability, and returns.

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    Answer 5 - " Modern Appliances Corporation"

    Uploaded by

    Rheu Reyes
    196 views4 pages
    Modern Appliances Corporation reported its financial results for the fiscal year ended December 31, 2017. The company generated $5.4 billion in net sales and $430 million in net earnings. Assets totaled $4.4 billion, including $754.7 million in net fixed assets. Liabilities included $1.2 billion in long-term debt and $1.6 billion in current liabilities. Key financial ratios were calculated to analyze the company's liquidity, asset use, debt levels, profitability, and returns.

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    Answer 5 – “ Modern Appliances Corporation”

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    Modern Appliances Corporation reported its financial results for the fiscal year ended December 31, 2017. The company generated $5.4 billion in net sales and $430 million in net earnings. Assets totaled $4.4 billion, including $754.7 million in net fixed assets. Liabilities included $1.2 billion in long-term debt and $1.6 billion in current liabilities. Key financial ratios were calculated to analyze the company's liquidity, asset use, debt levels, profitability, and returns.

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    © All Rights Reserved
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    196 views4 pages

    Answer 5 - " Modern Appliances Corporation"

    Uploaded by

    Rheu Reyes
    Modern Appliances Corporation reported its financial results for the fiscal year ended December 31, 2017. The company generated $5.4 billion in net sales and $430 million in net earnings. Assets totaled $4.4 billion, including $754.7 million in net fixed assets. Liabilities included $1.2 billion in long-term debt and $1.6 billion in current liabilities. Key financial ratios were calculated to analyze the company's liquidity, asset use, debt levels, profitability, and returns.

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    © All Rights Reserved
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    Answer 5 – “ Modern Appliances Corporation”

    Modern Appliances Corporation has reported its financial results for the year ended December 31, 2017.

    Modern Appliances Corporation

    Income Statement for the Fiscal

    Year Ended December 31, 2017


    Net Sales $5,398,412,000
    Cost of goods sold 3,432,925,255
    Gross profit $1,965,486,745
    Selling, general, and admin. expenses 1,036,311,231
    Depreciation 299,928,155
    Operating income $ 629,247,359
    Interest expense 35,826,000
    EBT $ 593,421,359
    Income taxes 163,104,554
    Net earnings $ 430,316,805
    Modern Appliances Corporation

    Balance Sheet as of December 31, 2017


    Assets: Liabilities and Equity:
    Cash and cash equivalents $ 514,412,159 Short-term borrowings $ 117,109,865
    Accounts receivable 1,046,612,233 Trade accounts payable 466,937,985
    Inventory 981,870,990 Other current liabilities 994,289,383
    Other current assets 313,621,610
    Total current assets $2,856,516,992 Total current liabilities $1,578,337,233
    Net fixed assets 754,660,275 Long-term debt 1,200,691,565
    Goodwill 118,407,710 Common stock 397,407,352
    Other assets 665,058,761 Retained earnings 1,218,207,588
    Total assets $4,394,643,738 Total liabilities and equity $4,394,643,738

    Using the information from the financial statements, complete a comprehensive ratio analysis for
    Modern Appliances Corporation.

    a. Calculate these liquidity ratios: current and quick ratios.

    Current ratio = Current asset/Current liability

    = 2,856,516,992/1,578,337,233

    = 1.81
    Quick ratios= Quick asset/Current Liability

    = (2,856,516,992-981,870,990)/1,578,337,233

    = 1.18

    b. Calculate these efficiency ratios: inventory turnover, accounts receivable turnover, DSO.

    Inventory turnover = COGS/Total inventory

    = 3,432,925,255/981,870,990

    =3.50

    Accounts receivable turnover= Total sales / Accounts receivable

    = 5,398,412,000/1,046,612,233

    =5.16

    DSO = 365/Accounts receivable turnover

    = 365/5.16

    = 70.74

    c. Calculate these asset turnover ratios: total asset turnover, fixed asset turnover.

    Total asset turnover = Total sales/ Total assets

    = 5,398,412,000/4,394,643,738

    = 1.23

    Fixed asset turnover = Total sales/Total Fixed asset

    = 5,398,412,000/754,660,275

    = 7.15

    d. Calculate these leverage ratios: total debt ratio, debt-to-equity ratio, equity multiplier.

    Debt ratio = Total debt/Total asset

    = (1,578,337,233 + 1,200,691,565)/4,394,643,738

    = 0.63

    Debt to equity = Total debt/Total equity

    = (1,578,337,233 + 1,200,691,565)/(397,407,352 + 1,218,207,588)

    = 1.72

    Equity multiplier = Total asset/Total equity

    = 4,394,643,738/(397,407,352 + 1,218,207,588)
    = 2.72

    e. Calculate these coverage ratios: times interest earned, cash coverage.

    Times interest earned = EBIT/Interest

    = 629,247,359/35,826,000

    = 17.56

    Cash coverage ratio = (EBIT + depreciation)/Interest

    = (629,247,359 + 299,928,155)/35,826,000

    = 25.94

    f. Calculate these profitability ratios: gross profit margin, net profit margin, ROA, ROE.

    Gross profit = Total gross profit/ Total sales

    = (1,965,486,745/5,398,412,000) x 100

    = 36.41

    Net profit margin = Net profit/ Total sales

    = (430,316,805/5,398,412,000) x 100

    = 7.97

    ROA = Net profit/Total assets

    = (430,316,805/4,394,643,738) x 100

    = 9.79

    ROE = Net profit/Total equity

    = [430,316,805/(397,407,352 + 1,218,207,588)] x 100

    = 26.63

    g. Use the DuPont identity, after calculating the component ratios, to compute ROEoss

    ROE using DU PONT = Net profit margin x equity multiplier x asset turnover

    = [(430,316,805/5,398,412,000) x 100] x [4,394,643,738/(397,407,352 + 1,218,207,588)] x


    (5,398,412,000/4,394,643,738)

    = 7.97 x 2.72 x 1.23

    =26.66

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