Question

Compute Financial ratios

Current Ratio, Quick Ratio, Reeivables turnover, Inventory turnover, Profit margin, Asset turnover, Return on assets, Return on equity, Earnings per Share,

Price-earnings, Cash Dicidend payot, Debt Ratio, Debt-to-Equity, and Times Interest earned

Orange Company
Income Statement
For the Years Ended December 31
				2013	2012
Net sales (all on account)				$            600,000	$                520,000
Expenses:
Cost of Goods Sold				$            415,000	$                354,000
Selling and administrative				$            120,800	$                114,600
Interest Expense				$                7,800	$                    6,000
Income Tax Expense				$              18,000	$                  14,000
Total expenses				$            561,600	$                488,600
Net Income				$              38,400	$                  31,400
Additional Data:
1. The common stock recently sold at $19.50 per share.
2. Cash dividends in the amount of $15,400 were paid-out in 2013. Orange Company Balance Sheets December 31 2013 2012 Assets Current Assets Cash $        21,000 $        18,000 Short-term investments $        18,000 $        15,000 Accounts Receivable $        86,000 $        74,000 Inventory $        90,000 $        70,000 Total Current Assets $      215,000 $      177,000 Plant Assets $      423,000 $      383,000 Total Assets $      638,000 $      560,000 Liabilities and Stockholder's Equity Current Liabilities Accounts Payable $      122,000 $      110,000 Income Taxes Payable $        23,000 $        20,000 Total Curent Liabilities $      145,000 $      130,000 Long-term Liabilities Bonds Payable $      120,000 $        80,000 Total Liabilities $      265,000 $      210,000 Stockholder's Equity Common Stock ($5 par value) $      150,000 $      150,000 Retained Earnings $      223,000 $      200,000 Total Stockholder's Equity $      373,000 $      350,000 Total Liabilities and Stockholder's Equity $      638,000 $      560,000

												Retained Earnings					$      223,000	$      200,000
												Total Stockholder's Equity					$      373,000	$      350,000
												Total Liabilities and Stockholder's Equity					$      638,000	$      560,000

Answer 1

Answer of Part a:

Current Ratio = Current Assets / Current Liabilities
Current Ratio = $215,000 / $145,000
Current Ratio = 1.48

Answer of Part b:

Quick Ratio = (Current Assets – Inventory) / Current Liabilities
Quick Ratio = ($215,000 - $90,000) / $145,000
Quick Ratio = $125,000 / $145,000
Quick Ratio = 0.86

Answer of Part c:

Average Accounts Receivable = (Beginning Accounts Receivable + Ending Accounts Receivable) /2
Average Accounts Receivable = ($74,000 + $86,000) /2
Average Accounts Receivable = $80,000

Accounts Receivable Turnover = Sales / Average Account Receivable
Accounts Receivable Turnover = $600,000 / $80,000
Accounts Receivable Turnover = 7.5 times

Answer of Part d:

Average Inventory = (Beginning Inventory + Ending Inventory) /2
Average Inventory = ($70,000 + $90,000) /2
Average Inventory = $80,000

Inventory Turnover = COGS / Average Inventory
Inventory Turnover = $415,000 / $80,000
Inventory Turnover = 5.19 times

Answer of Part e:

Profit Margin = Net Income / Sales *100
Profit Margin = $38,400 / $600,000 *100
Profit Margin = 6.4%