[MUSIC] In this session, we will do some practices for financial ratios. Here's a company called Company C, and its revenue in year 2018 is $10,000,000. COGS is $6.5 million and SG&A expenses is $1.5 million. Its interest expense is $200,000 and the corporate tax rate is 20%. Then let's first construct the income statement. I guess that you can easily do this. So first, the revenue is $10 million and COGS is $6.5 million. So the gross profit is $3,500 million, after deducting $1,500 million on SG&A, we obtained the operating profit of $2,000 million. The interest was $200,000 and so the tax stays at 20% of $1.8 million, so $360,000. So the final net profit is $1.44 million, okay. And then and so, gross margin is 35% and operating margin is 2 million divided by 10 million, so 20%, and net margin is 14.4%. Here's the balance sheet of Company C at the end of year 2018. Okay, let's estimate liquidity ratios. Current ratio is the ratio between current assets and current liabilities. And so the current asset is the sum of cash accounts receivable and inventory, and we know that the current liabilities is in this case, account receivable. So the current ratio is 4.64. Quick ratio is current assets minus inventory. So we obtain the quick ratio of 3.15 for Company C. Let's estimate the leverage ratios. Debt-to-equity ratio is the ratio between the total liabilities and shareholders' equity and it is 1.11. Interest coverage is the ratio between operating profit and annual interest charges and it is 2,000 over 200, so 10. Now let's calculate the cash conversion cycle. Days in inventory is the ratio between the average inventory level and COGS per day, and we obtain 60 days. Days sales outstanding is a ratio between ending account receivable and daily revenue. And so DSO is 30 days. Days payable outstanding is ending accounts payable over daily COGS and DPO is 40 days so the cash conversion cycle for Company C is 50 days. This concludes the lecture for the second week. I will see you in the third week.