M2. Problem Set Instructions:

1.In your text, go through Chapter 3 ST1 through ST5 (pages 104-105). Use the Excel file M2_Problem_Set_Excel Download M2_Problem_Set_Excel that I provide and the formula sheet in the book to make the calculations. Be sure to use cell references. (50 pts) See Assigned Readings Related to Excel Basics for Problem Set for tutorials on entering formulas in Excel.

2. Write one sentence (in the Excel File) next to each ratio you calculated in Question 1 describing what that number means in words. (50 pts) For example, if you calculate the average collection period as 40, you should write something like on average, it takes 40 days for Freemont Corporation to collect its accounts receivable.

Submit your modified Excel file when you have completed the project .

3-14 Self-Test Problems

The following financial data for the Freemont Corporation are to be used in answering self-test problems 16.

Balance Sheet ($000)

Assets Liabilities & Stockholders Equity

Cash $1,500 Accounts payable $12,500

Marketable securities 2,500 Notes payable 12,500

Accounts receivable. 15,000 Total current liabilities. $25,000

Inventory. 33,000 Long-term debt 22,000

Total current assets. $52,000 Total liabilities. $47,000

Fixed assets (net) 35,000 Common stock (par value) 5,000

Total assets $87,000 Contributed capital in excess of par 8,000

Retained earnings 17,000

Total stockholders equity. $40,000

Total liabilities and stockholders equity $87,000

Income Statement ($000)

Sales (all on credit) $130,000

Cost of sales. 103,000

Gross margin. $27,000

Operating expenses* 16,000

Earnings before interest and taxes $11,000

Interest expense 3,000

Earnings before taxes $8,000

Income tax. 3,000

Earnings after taxes $5,000

*Includes $200(000) in lease payments

Other Information

Stock price $9.50

Book value/share $8.00

Number of shares 5,000 (000)

ST1. Calculate the following liquidity ratios:

a. Current ratio

b. Quick ratio

ST2. Calculate the following asset management ratios:

a. Average collection period

b. Inventory turnover

c. Fixed-asset turnover

d. Total asset turnover

ST3. Calculate the following financial leverage management ratios:

a. Debt ratio

b. Debt-to-equity ratio

c. Times interest earned ratio

d. Fixed-charge coverage ratio

ST4. Calculate the following profitability ratios:

a. Gross profit margin

b. Net profit margin

c. Return on investment

d. Return on stockholders equity

ST5. Calculate the following market-based ratios:

a. Price-to-earnings ratio

b. Market price-to-book value ratio