Description
After reading the chapter, work Exercises/Problems (EP) #3 A , B, C, D & E located on page 187 of your textbook.
EP3. (Financial Statements and Ratios) Bike with us Corporation, a specialty bicycle parts replacement venture, was started last year … read the entire problem on page 187. Use the attached Worksheet to complete this problem.
leverage 3. [Financial Statements and Ratios] Bike-With-Us Corporation, a specialty bicycle parts replacement ven-ture, was started last year by two former professional cyclists who had substantial competitive racing experience, including the Tour de France. The two entrepreneurs borrowed $50,000 from members of their families, and each put up $30,000 in equity capital. Retail space was rented, and $60,000 was spent for fixtures and store equipment. Following is the abbreviated income statement and balance sheet infor-mation for the Bike-With-Us Corporation after one year of operation.
BIKE-WITH-US CORPORATION
Sales S325,000
Operating costs 285,000
Depreciation 10,000
Interest 5,000
Taxes 6,000
Cash $1,000
Receivables 30,000
Inventories 50,000 Fixed assets,
net 50,000 Payables 11,000
Accruals 10,000
Long-term loan 50,000
Stockholders’ equity 60,000
A. Prepare an income statement and a balance sheet for the Bike-With-Us Corporation using only the information provided above.
B. Calculate the current ratio, quick ratio, and NWC-to-total-assets ratio.
C. Calculate the total-debt-to-total-assets ratio, debt-to-equity ratio, and interest coverage.
D. Calculate the net profit margin, sales-to-total-assets ratio, and the return on assets.
E. Calculate the equity multiplier. Combine this calculation with the calculations in Part D to show the ROE model with its three components.
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