Principles of Managerial Finance

76 PART 1 Introduction to Managerial Finance

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ST 2–2 Balance sheet completion using ratios Complete the 2003 balance sheet for

O’Keefe Industries using the information that follows it.

The following financial data for 2003 are also available:

(1) Sales totaled $1,800,000. (6) The current ratio was 1.60.

(2) The gross profit margin was 25%. (7) The total asset turnover ratio

(3) Inventory turnover was 6.0. was 1.20.

(4) There are 360 days in the year. (8) The debt ratio was 60%.

(5) The average collection period

was 40 days.

PROBLEMS

2–1 Reviewing basic financial statements The income statement for the year ended

December 31, 2003, the balance sheets for December 31, 2003 and 2002, and

the statement of retained earnings for the year ended December 31, 2003, for

Technica, Inc., are given here. Briefly discuss the form and informational content

of each of these statements.

Technica, Inc.

Income Statement

for the Year Ended December 31, 2003

Sales revenue $600,000

Less: Cost of goods sold  (^4)  (^6)  (^0) , (^0)  (^0)  (^0) 
Gross profits $140,000
Less: Operating expenses
General and administrative expense $30,000
Depreciation expense  (^3)  (^0) , (^0)  (^0)  (^0) 
Total operating expense  (^6)  (^0) , (^0)  (^0)  (^0) 
Operating profits $ 80,000
Less: Interest expense  (^1)  (^0) , (^0)  (^0)  (^0) 
Net profits before taxes $ 70,000
Less: Taxes  (^2)  (^7) , (^1)  (^0)  (^0) 
Earnings available for common stockholders $

4

2

,

9

0

0

Earnings per share (EPS) $2.15
O’Keefe Industries
Balance Sheet
December 31, 2003
Assets Liabilities and Stockholders’ Equity
Cash $30,000 Accounts payable $120,000
Marketable securities 25,000 Notes payable 
Accounts receivable  Accruals  (^2)  (^0) , (^0)  (^0)  (^0) 
Inventories  Total current liabilities 
Total current assets  Long-term debt 
Net fixed assets  Stockholders’ equity $ (^6)  (^0)  (^0) , (^0)  (^0)  (^0) 
Total assets $

Total liabilities and
stockholders’ equity $