756 Part Nine Financial Planning and Working Capital Management
bre44380_ch28_732-758.indd 756 10/06/15 09:49 AM
c. The firm arranges a line of credit with a bank that allows it to borrow at any time to pay
its suppliers.
d. A customer pays its overdue bills.
e. The firm uses cash to purchase additional inventories.- Return on assets Sara Togas sells all its output to Federal Stores. The following table
shows selected financial data, in millions, for the two firms:
Sales Interest Payment Net Income Assets at Start of YearFederal Stores $100 $4 $10 $50
Sara Togas 20 1 4 20Calculate the sales-to-assets ratio, the operating profit margin, and the return on assets for
the two firms. Now assume that the two companies merge. If Federal continues to sell goods
worth $100 million, how will the three ratios change?- Financial ratios As you can see, someone has spilled ink over some of the entries in the
balance sheet and income statement of Transylvania Railroad (Table 28.11). Can you use
the following information to work out the missing entries? (Note: For this problem, use the
following definitions: inventory turnover = COGS/average inventory; receivables collection
period = average receivables/[sales/365].)
∙ Long-term debt ratio: .4.
∙ Times-interest-earned: 8.0.
December 2015 December 2014
Balance Sheet
Cash 20
Accounts receivable 34
Inventory 26
Total current assets 80
Fixed assets (net) 25
Total 105
Notes payable 25 20
Accounts payable 30 35
Total current liabilities 55
Long-term debt 20
Equity 30
Total 115 105
Income Statement
Sales
Cost of goods sold
Selling, general and administrative expenses 10
Depreciation 20
EBIT
Interest
Earnings before tax
Ta x
Earnings available for common stock❱ TABLE 28.11^ Balance
sheet and income statement of
Transylvania Railroad (figures in
$ millions).