Fayetteville State University School of Business and Economics
Department of Finance, Economics, Entrepreneurship, and Marketing
Principles of Finance (FINC 311)
Homework Assignment 1
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Section
Date
This homework assignment is intended to assess your understanding of financial statements and ratios. Please read each question carefully before you begin to answer that question. Show your work in the space provided on the answer sheet for all questions and explain your answers. Extra credit will be provided for your effort.
Learning Goal 1: Students will be able to calculate financial ratios from a company's financial statements and interpret the ratios.
FSU Daycare, Inc. has the following financial statements data for 2008:
Income Statement:
Sales: $102,500
Cost of Goods Sold: $50,000
SG&E Expenses: $35,000
EBIT: $2,500
Interest Expense: $6,000
Taxes: $9,000
Net Income: $40,000
Balance Sheet:
Cash: $55,000
Fixed Assets: $95,000
Total Assets: $150,000
Accounts Payable: $12,000
Long-term Debt: $25,000
Retained Earnings: $28,000
Paid-in Common Equity: $30,000
Use of financial statements:
Compute the firm's debt ratio and current ratio.
Current Ratio = Current Assets / Current Liabilities
Debt Ratio = Total Debt / Total Assets
b. Is the firm profitable? Does the balance sheet balance? Explain.