New Mexico Lumber Financial Analysis
- New Mexico Lumber recently reported that its earnings per share were $3.00. The company has 400,000 shares of stock outstanding. The company’s interest expense was $500,000. The corporate tax rate is 40 percent. What was the company’s operating income (EBIT)?
- Humphrey Hotels’ operating income (EBIT) is $40 million. The company’s times-interest-earned (TIE) ratio is 8.0, its tax rate is 40 percent, and its basic earning power (BEP) ratio is 10 percent. What is the company’s return on assets (ROA)?
- A firm has a debt/equity ratio of 50 percent. Currently, it has interest expense of $500,000 on $5,000,000 of total debt outstanding, and a tax rate of 40 percent. If the firm’s ROA is 6 percent, by how many percentage points is the firm’s ROE greater than its ROA?
- You are considering adding a new product to your firm’s existing product line. It should cause a 15% increase in your profit margin (i.e., new PM = old PM × 1.15), but it will also require a 50% increase in total assets (i.e., new TA = old TA × 1.5). You expect to finance this asset growth entirely by debt. If the following ratios were computed before the change, what will be the new ROE if the new product is added and sales remain constant?
Ratios before new product
Profit margin = 0.10
Total assets turnover = 2.00
Equity multiplier = 2.00
- The Amer Company has the following characteristics:
Sales $1,000
Total assets $1,000
Total debt/Total assets 35%
Basic Earning Power (BEP) ratio 20%
Tax rate 40%
Interest rate on total debt 4.57%
What is Amer’s ROE?
- A firm which has an equity multiplier of 6.0 will have a debt ratio of?
- Alumbat Corporation has $800,000 of debt outstanding, and it pays an interest rate of 10 percent annually on its bank loan. Alumbat’s annual sales are $3,200,000; its average tax rate is 40 percent; and its net profit margin on sales is 6 percent. If the company does not maintain a TIE ratio of at least 4 times, its bank will refuse to renew its loan, and bankruptcy will result. What is Alumbat’s current TIE ratio?
- Manufacturer’s Inc. estimates that its interest charges for this year will be $700 and that its net income will be $3,000. Assuming its average tax rate is 30 percent, what is the company’s estimated times-interest-earned ratio?
- Kansas Office Supply had $24,000,000 in sales last year. The company’s net income was $400,000. Its total assets turnover was 6.0. The company’s ROE was 15 percent. The company is financed entirely with debt and common equity. What is the company’s debt ratio?
- The Merriam Company has determined that its return on equity is 15 percent. Management is interested in the various components that went into this calculation. You are given the following information: total debt/total assets = 0.35 and total assets turnover = 2.8. What is the profit margin?
- Harvey Supplies Inc. has a current ratio of 3.0, a quick ratio of 2.4, and an inventory turnover ratio of 6. Harvey’s total assets are $1 million and its debt ratio is 0.20. The firm has no long-term debt. What is Harvey’s sales figure?
- Given the following information, calculate the market price per share of WAM Inc.
Net income = $200,000
Earnings per share = $2.00
Stockholders’ equity = $2,000,000
Market/Book ratio = 0.20
- The Wilson Corp.has the following relationships. What is Wilson’s profit margin and debt ratio?
Sales/Total assets 2.0
Return on assets (ROA) 4%
Return on equity (ROE) 6%
- Company A has sales of $1,000, assets of $500, a debt ratio of 30 percent, and an ROE of 15 percent. Company B has the same sales, assets, and net income, but its ROE is 30 percent. What is B’s debt ratio? (Hint: Begin by looking at the Du Pont equation.)
- one Star Plastics has the following data. What is Lone Star’s EBIT?
Assets: $100,000; Profit margin: 6.0%; Tax rate: 40%; Debt ratio: 40.0%;
Interest rate: 8.0%: Total assets turnover: 3.0.
