Question

In: Accounting

                                         Company X

  1.                                          Company XYZ

                                                       Balance Sheet

                     Assets                                                           Liabilities

   Cash                                 $15,000           Accounts Payable                               $20,000

   Marketable Securities        25,000           Accrued Wages                                    17,000

   Accounts Receivable         30,000           Bonds                                                    15,000

   Inventory                           35,000           Bank Loan                                             50,000

   Net Plant & Equipment $125,000            Total Liabilities                               $102,000

                                                                                       Owners Equity

                                                                     

                                                                 Common Stock                                        $85,000

                                                                 Retained Earnings                                      43,000

                                                                      Total Owners Equity                         $128,000

    Total Assets               $230,000           Total Liabilities & Owners Equity         $230,000

Sales during the year were $550,000.

Net Income for the year was $40,000.

Market Price per share is currently $20.00.

Interest expense for the year was $7,000.

Earnings before taxes were $50,000.

20,000 shares of Common Stock Outstanding

Based on the above information calculate and interpret the following ratios: (40 points)

  1. Current Ratio
  2. Quick Ratio
  3. Days Sales Outstanding
  4. Total Asset Turnover
  5. Total Debt Ratio

Solutions

Expert Solution

Current Ratio = Current Assets / Current Liabilities

= (Cash+Marketable Securities+Accounts Receivable+Inventory) / (Accounts Payable+Accrued Wages+Bank Loan)

= (15,000 + 25,000 + 30,000 + 35,000) / (20,000 + 17,000 + 50,000) = 105,000 / 87,000 = 1.21

Therefore, Current ratio is 1.21

Note - It has been assumed that the maturity period for bonds is more than one year (non-current liability) and that of the bank loan is one year or less (current liability).

Quick Ratio = (Current Assets - Inventory) / Current Liabilities

= (105,000 - 35,000) / 87,000 = 0.80

Therefore, Quick Ratio is 0.80

Days Sale Outstanding = Accounts Receivables / Average Sales in a day

= Accounts Receivables / ( Sales for the year / 365 days ) = 30,000 / ( 550,000 / 365 ) = 30,000 / 1,506.8 = 19.91

Therefore, Days Sale Outstanding is 19.91 days

Total Assets Turnover Ratio = Sales during the year / Total Assets = 550,000 / 230,000 = 2.39

Therefore, Total Assets Turnover Ratio is 2.39

Total Debt Ratio = Total Debt / Total Assets = 102,000 / 230,000 = 0.44

Therefore, Debt Ratio is 0.44

ekkarill92 answered 1 year ago
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