Hello thanksmate!
In order to answer this question, we should first understand what each
of the provided ratios mean. You can find a brief definition of these
ratios at the following links:
Debt/Assets Ratio
http://www.investorwords.com/5497/debt_asset_ratio.html
Quick Ratio
http://www.investorwords.com/4008/quick_ratio.html
Asset Turnover
http://www.investorwords.com/291/asset_turnover.html
Fixed Asset
http://www.investorwords.com/1988/fixed_asset.html
Current Ratio
http://www.investorwords.com/1258/current_ratio.html
Average Collection Period
http://www.investorwords.com/349/average_collection_period.html
Now let's see how we can use this information in order to complete the
missing fields in the balance sheet. First of all, before using any of
the ratios, we know that:
Total Liabilities + Net Worth = Total Assets
So,
Total Liabilities + Net Worth = 1,000,000
This completes the lower right spot of the balance sheet. Now let's
see what the ratios are telling us. First of all we know that the
Debt/Assets ratio is equal to 35%. Since the ratio is:
Total Liabilities
----------------- = Debt/Asset Ratio = 35% = 0.35
Total Assets
then we can deduce that Total Liabilities are 35% of 1,000,000; that is, 350,000.
Total Liabilities = 350,000
Also, since Net Worth + Total Liabilities = 1,000,000, then we know
that Net Worth must be:
Net Worth = 1,000,000 - 350,000 = 650,000
Now let's use the turnover ratios. We have:
Net Sales
------------ = Asset Turnover = 4
Total Assets
Net Sales
------------ = Fixed Asset Turnover = 10
Fixed Assets
I'll assume here that these are annual ratios; that is, I'll assume
that the ratio is calculated using annual net sales. This assumption
is not important right now, but it will be so when we try to use
another of the ratios.
Using these ratios, we can find the fixed assets, which in this case
would be the "Plant and Equipment" field. Dividing Asset Turnover by
Fixed Asset Turnover, we get:
Net Sales Fix Assets Fix Assets 4
---------- * ------------ = ---------- = --
Tot Assets Net Sales Tot Assets 10
Therefore, (F. Assets)/(T. Assets)=0.4. Since Total Assets are 1,000,000, we get:
Fixed Assets = 0.4 * 1,000,000 = 400,000
(also, using the Fixed Asset Turnover Ratio, we know that annual sales
are 4,000,000)
Now, since
Total Assets = Fixed Assets + Total Current Assets
then
1,000,000 = 400,000 + Total Current Assets
Total Current Assets = 600,000
We can now complete the "liabilities" side of the balance sheet. We know that
Curr. Assets
Current Ratio = ------------ = 2
Curr. Liab.
Therefore, since Current Assets is 600,000, then
Current Liabilities = 300,000
Also, since
Total Liabilities = Current Liabilities + Bonds Payable
and we already know that Total Liabilities are 350,000 and Current
Liabilities are 300,000, then
Bonds Payable = 50,000
The balance sheet so far looks like this:
Cash_________________________ Current Liabilities 300,000
Receivables__________________ Bonds Payable 50,000
Inventory____________________ Total Liabilities 350,000
Total Current Assets 600,000 Net Worth 650,000
Plant and Equipment 400,000 _________________________________
Total Assets 1,000,000 Tot. Liab.+Net Worth 1,000,000
So now we only need to compute Cash, Receivables and Inventory. The
Quick Ratio gives us information about them:
Cash + Receivables
Quick Ratio = ------------------- = 1.2
Current Liabilities
So, since Curr. Liabilities is 300,000,
Cash + Receivables = 300,000*1.2 = 360,000
Now, since Cash+Receivables+Inventory = Total Current Assets, and
Total Current Assets are 600,000, then:
Inventory = 600,000 - 360,000 = 240,000
Finally, we still haven't used the average collection period. This is
calculated as:
Receivables
Avg Col Period = ---------------- = 20
Avg Daily Sales
Here's where the assumption I made before comes in effect. I assumed
that the company's 4,000,000 in sales were annual. So, using a 250-day
year (which is roughly the number of working days in one year), we get
that average daily sales are 4,000,000/250=16,000. Therefore, we get
that:
Receivables = 16,000*20 = 320,000
Since we knew that Cash + Receivables = 360,000, we finally get that
Cash = 40,000
So this is how the balance sheet looks like:
Cash 40,000 Current Liabilities 300,000
Receivables 320,000 Bonds Payable 50,000
Inventory 240,000 Total Liabilities 350,000
Total Current Assets 600,000 Net Worth 650,000
Plant and Equipment 400,000 _________________________________
Total Assets 1,000,000 Tot. Liab.+Net Worth 1,000,000
Useful resources to get definition and formulae of the used financial ratios are:
InvestorWords.com - Investor Glossary
http://www.investorwords.com/
Financial Ratios and Quality Indicators
http://www.sba.gov/test/wbc/docs/finance/fs_ratio1.html
Google search terms
current ratio
://www.google.com.ar/search?hl=es&ie=UTF-8&q=current+ratio&meta=
definition financial ratios
://www.google.com.ar/search?hl=es&ie=UTF-8&q=definition+financial+ratios&meta=
I hope this helps! If you have any doubt regarding my answer, please
don't hesitate to request clarification before rating it, I'll be more
than happy to be of further assistance.
Best wishes!
elmarto |
