# Ratio Analysis

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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