Ratio Analysis

Ratio Analysis thumbnail

Suppose you have Alpha’s Income Statement and Balance Sheet for two consecutive years. Based on this
information, you need to calculate certain financial ratios.

Income statement
In USD million 2019 2020
Revenue 4,077 4,560
Cost of sales 2,710 3,059
Gross profit 1,367 1,501
Marketing expenses 396 437
Administrative costs 280 302
Sale and distribution costs 197 223
Operating profit (EBIT) 494 539
Interest expense 140 185
Earnings before tax (EBT) 354 354
Tax expense 16 18
Net income 338 336
Balance sheet
In USD million 2019 2020
Non-current assets
Fixed assets 2,005 2,020
Intangible assets 1,800 1,904
Current assets
Inventory 409 482
Trade receivables 730 863
Cash and cash equivalents 496 588
Marketable securities 400 398
Total assets 5,840 6,255
Long term liabilities
Long-term bank loan 152 178
Current liabilities
Payables to employees 580 621
Short-term bank loan 750 803
Trade payables 286 298
Accruals 401 493
Total liabilities 2,169 2,393
Share capital 300 300
Retained earnings 3,371 3,562
Total equity 3,671 3,862
Total equity & liabilities 5,840 6,255

1. Alpha’s operating profit margin in 2020 is:

 
 
 

2. Alpha’s Return on Equity (ROE) in 2020 is:

 
 
 

3. Alpha’s quick ratio in 2020 is:

 
 
 

4. Alpha’s accounts receivable turnover in 2020 is:

 
 
 

5. Alpha’s days of inventory on hand (in days) in 2020 is:

 
 
 

6. Alpha’s payables turnover in 2020 is:

 
 
 

7. Alpha’s cash conversion cycle (in days) in 2020 is:

 
 
 

8. Alpha’s financial leverage in 2020 is:

 
 
 

9. Alpha’s debt-to-assets ratio in 2020 is:

 
 
 

10. Alpha’s interest burden in 2020 is:

 
 
 

11. Higher ROE is most probably resulting from:

 
 
 

12. Higher ROE is least probably resulting from:

 
 
 

13. An analyst has compiled the following data for a subject firm:

  • Dividend payout ratio = 25%
  • Net profit margin = 11%
  • Asset turnover = 1.4
  • Financial leverage = 1.3

The firm’s estimated sustainable growth rate (g) is:

 
 
 

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