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Consider the following financial data for Terry Enterprises:     Balance Sheet as of December 31, 2018               Cash $ 86,000   Accounts payable $ 15,500 Accts. receivable   91,500   Notes payable   93,500 Inventories   65,500   Accruals   19,500   Total current assets $ 243,000     Total current liabilities $ 128,500         Long-term debt   162,500 Net plant & equip.   419,500   Common equity   371,500 Total assets $ 662,500   Total liab. & equity $ 662,500               Statement of Earnings for 2018   Industry Average Ratios               Net sales $ 642,500   Current ratio 2.2× Cost of goods sold   482,000   Quick ratio 1.7× Gross profit $ 160,500   Days sales outstanding 44 days Operating expenses   119,500   Inventory turnover 6.7×   EBIT $ 41,000   Total asset turnover 0.6× Interest expense   14,500   Net profit margin 7.2%   Pre-tax earnings $ 26,500   Return on assets 4.4% Income taxes (35%)   9,275   Return on equity 7.7% Net profit $ 17,225   Debt-to-capital ratio 31%               Compared to other firms in the same industry, Terry...   a. has a shorter average collection period for receivables.   b. obtains more of its capital from equity financing.   c. generates less profit per dollar of total assets.   d. has a higher profit margin.   e. is better able to meet its short-term obligations.

Consider the following financial data for Terry Enterprises:     Balance Sheet as of December 31, 2018               Cash $ 86,000   Accounts payable $ 15,500 Accts. receivable   91,500   Notes payable   93,500 Inventories   65,500   Accruals   19,500   Total current assets $ 243,000     Total current liabilities $ 128,500         Long-term debt   162,500 Net plant & equip.   419,500   Common equity   371,500 Total assets $ 662,500   Total liab. & equity $ 662,500               Statement of Earnings for 2018   Industry Average Ratios               Net sales $ 642,500   Current ratio 2.2× Cost of goods sold   482,000   Quick ratio 1.7× Gross profit $ 160,500   Days sales outstanding 44 days Operating expenses   119,500   Inventory turnover 6.7×   EBIT $ 41,000   Total asset turnover 0.6× Interest expense   14,500   Net profit margin 7.2%   Pre-tax earnings $ 26,500   Return on assets 4.4% Income taxes (35%)   9,275   Return on equity 7.7% Net profit $ 17,225   Debt-to-capital ratio 31%               Compared to other firms in the same industry, Terry...   a. has a shorter average collection period for receivables.   b. obtains more of its capital from equity financing.   c. generates less profit per dollar of total assets.   d. has a higher profit margin.   e. is better able to meet its short-term obligations.

Cornerstones of Financial Accounting
Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
Chapter9: Long-term Liabilities
Section: Chapter Questions
Problem 89E: Ratio Analysis Rising Stars Academy provided the following information on its 2019 balance sheet and...
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  1. Consider the following financial data for Terry Enterprises:

     
     
    Balance Sheet as of December 31, 2018
                 
    Cash
    $
    86,000
    		   Accounts payable $
    15,500
    Accts. receivable  
    91,500
    		   Notes payable  
    93,500
    Inventories  
    65,500
    		   Accruals  
    19,500
      Total current assets
    $
    243,000
    		     Total current liabilities $
    128,500
            Long-term debt  
    162,500
    Net plant & equip.  
    419,500
    		   Common equity  
    371,500
    Total assets
    $
    662,500
    		   Total liab. & equity $
    662,500
                 
    Statement of Earnings for 2018
    		  
    Industry Average Ratios
                 
    Net sales
    $
    642,500
    		   Current ratio
    2.2×
    Cost of goods sold  
    482,000
    		   Quick ratio
    1.7×
    Gross profit
    $
    160,500
    		   Days sales outstanding
    44 days
    Operating expenses  
    119,500
    		   Inventory turnover
    6.7×
      EBIT
    $
    41,000
    		   Total asset turnover
    0.6×
    Interest expense  
    14,500
    		   Net profit margin
    7.2%
      Pre-tax earnings
    $
    26,500
    		   Return on assets
    4.4%
    Income taxes (35%)  
    9,275
    		   Return on equity
    7.7%
    Net profit
    $
    17,225
    		   Debt-to-capital ratio
    31%
                 


    Compared to other firms in the same industry, Terry...

      a.

    has a shorter average collection period for receivables.
      b.

    obtains more of its capital from equity financing.
      c.

    generates less profit per dollar of total assets.
      d.

    has a higher profit margin.
      e.

    is better able to meet its short-term obligations.
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