Data for SAREM Import-Export Enterprise are as follow.

Question

SAREM Import-Export Enterprise
Balance sheet Sene 30, 2016
Assets Liabilities and Shareholders’ Equity
Cash……………………Br.77, 500 Account payable…………Br. 129,000
Receivable…………….......336,000 Notes payable………..………. 84,000
Inventories……………..... ..241,500 Other current liabilities…… 117,000 Total current Asset……..Br. 655,000 Total current liabilities…..Br. 330,000
Net fixed asset……………..292,000 Long-term debt……………....256,500
Common equity……………..361,000
Total assets……………Br. 947,500 Total liabilities &Equity…Br.947,500
SAREM Import-Export Enterprise
Income Statement
For the year ended Sene 30, 2016
Sales Br. 1,607,500
Cost of goods sold:
Materials……………………………………Br. 717,000
Labor…………………………………………..453,000
Heat, light and power…………………………. 68,000
Indirect labor…………………………………..113,000
Depreciation……………………………………41,500 1,392,500
Gross profit…………………………………………… ……………..Br. 215,000
Selling expenses……………………………………………Br. 115,000
General & administrative expense ……………………………. 30,000 145,000 Earnings before interest and taxes (EBIT)………………………… …………Br. 70,000
Interest expense……………………………..……………………………………… 24,500
Earning before tax………………………………………………………………Br. 45,000
Income tax (40%)…………………………………………………………………..18,200
Net income…………………………………………………….. …………………...27,300
Required
Calculate the following ratios from the data given in the financial statements above for SAREM Import-Export Enterprise.
Current ratio
Inventory turnover
Total asset Turnover
Net Profit Margin
Return on Total assets
Return on Equity
Debt ratio

Answer 1

To calculate the financial ratios for SAREM Import-Export Enterprise, we will use the information provided in the balance sheet and income statement. Here are the calculations for each required ratio:

1. Current Ratio

The current ratio is calculated as:

\[ \text{Current Ratio} = \frac{\text{Total Current Assets}}{\text{Total Current Liabilities}} \]

From the data:

• Total Current Assets = Br. 655,000
• Total Current Liabilities = Br. 330,000

\[ \text{Current Ratio} = \frac{655,000}{330,000} = 1.9879 \quad (\approx 1.99) \]

2. Inventory Turnover

Inventory turnover is calculated as:

\[ \text{Inventory Turnover} = \frac{\text{Cost of Goods Sold}}{\text{Average Inventory}} \]

Assuming that the beginning inventory is not available and taking year ending inventory as average inventory:

• Cost of Goods Sold (COGS) = Br. 1,392,500
• Average Inventory = Br. 241,500 (since we have no opening inventory data, we will take year-end inventory)

\[ \text{Inventory Turnover} = \frac{1,392,500}{241,500} = 5.7717 \quad (\approx 5.77) \]

3. Total Asset Turnover

The total asset turnover is calculated as:

\[ \text{Total Asset Turnover} = \frac{\text{Sales}}{\text{Total Assets}} \]

From the data:

• Sales = Br. 1,607,500
• Total Assets = Br. 947,500

\[ \text{Total Asset Turnover} = \frac{1,607,500}{947,500} = 1.6962 \quad (\approx 1.70) \]

4. Net Profit Margin

Net profit margin is calculated as:

\[ \text{Net Profit Margin} = \frac{\text{Net Income}}{\text{Sales}} \]

From the data:

• Net Income = Br. 27,300
• Sales = Br. 1,607,500

\[ \text{Net Profit Margin} = \frac{27,300}{1,607,500} = 0.0169 \quad (\approx 1.69%) \]

5. Return on Total Assets (ROA)

ROA is calculated as:

\[ \text{Return on Total Assets} = \frac{\text{Net Income}}{\text{Total Assets}} \]

\[ \text{Return on Total Assets} = \frac{27,300}{947,500} = 0.0288 \quad (\approx 2.88%) \]

6. Return on Equity (ROE)

ROE is calculated as:

\[ \text{Return on Equity} = \frac{\text{Net Income}}{\text{Common Equity}} \]

From the data:

• Common Equity = Br. 361,000

\[ \text{Return on Equity} = \frac{27,300}{361,000} = 0.0757 \quad (\approx 7.57%) \]

7. Debt Ratio

The debt ratio is calculated as:

\[ \text{Debt Ratio} = \frac{\text{Total Liabilities}}{\text{Total Assets}} \]

Total Liabilities can be calculated as:

• Total Current Liabilities = Br. 330,000
• Long-term Debt = Br. 256,500

Total Liabilities = Br. 330,000 + Br. 256,500 = Br. 586,500

\[ \text{Debt Ratio} = \frac{586,500}{947,500} = 0.618 \quad (\approx 61.8%) \]

Summary of Ratios

• Current Ratio: 1.99
• Inventory Turnover: 5.77
• Total Asset Turnover: 1.70
• Net Profit Margin: 1.69%
• Return on Total Assets: 2.88%
• Return on Equity: 7.57%
• Debt Ratio: 61.8%

These calculated ratios provide insight into the liquidity, efficiency, profitability, and financial leverage of SAREM Import-Export Enterprise.