Question

A Using the balance sheet and income statement below, calculate the quick ratio.

B Using the balance sheet and income statement below, calculate the current ratio.

C Using the balance sheet and income statement below, calculate return on equity.

D Using the balance sheet and income statement below, calculate days sales outstanding (also called average collection period).

E Using the balance sheet and income statement below, calculate inventory turnover.

F sing the balance sheet and income statement below, calculate the return on assets.

G Using the balance sheet and income statement below, calculate times interest earned.

H Using the balance sheet an income statement below, calculate profit margin.

Balance Sheet
Assets
Current Assets
		Cash	$52,200
		Marketable Securities	$24,400
		Accounts Receivable (net)	$222,000
		Inventory	$238,000
		Total Current Assets	$536,600
		Investments	$65,900
		Plant and Equipment	$615,000
		Less: Accumulated Depreciation	($271,000)
		Net: Plant and Equipment	$344,000
		Total Assets	$946,500
Liabilities and Stockholders Equity
Current Liabilities
		Accounts Payable	$93,400
		Notes Payable	$70,600
		Accrued Taxes	$17,000
		Total Current Liabilities	$181,000
Long Term Liabilities
		Bonds Payable	$153,200
		Total Liabilities	$334,200
Stockholders Equity
		Preferred Stock, $50 par	$100,000
		Common Stock, $1 par	$80,000
		Capital paid in excess of par	$190,000
		Retained Earnings	$242,300
		Total Stockholders Equity	$612,300
		Total liabilities and stockholders equity	$946,500
Income Statement
Sales			$2,064,000
Cost of Goods Sold			$1,313,000
Gross Profit			$751,000
Selling and Admin Expenses			$496,000
Operating Profit			$255,000
Interest Expense			$26,900
Earnings before tax			$228,100
Taxes			$83,300
Earnings after tax			$144,800

Answer 1

Ans.1. Quick Ratio = Quick Assets / Current liabilities.

Quick Ratio = Current Assets - Inventory / Current liabilities.

Quick Ratio = 2.98,600 / 1,81,000 =1.64:1

Ans.2 Current Ratio = Current Assets / Current liabilities.

Current Ratio = $5,36,600 / $1,81,000 = 2.96:1.

Ans.3 Return on equity = Net Income /Shareholder's equity.

Return on equity = $1,44,800 / $6,12,300 *100 = 23.6%.

Ans.4. Days sales outstanding = Accounts Receivable / Net credit sales * Days in Accounting period.

Days sales outstanding = $2,22,000 / $2,064,000 *365 = 39 days.

Ans.5. Inventory turnover ratio = Cost of good sold / Average inventory.

Inventory turnover ratio = $1,313,000 / $2,38,000 = 5.15 times.

Ans.6. Return on assets = Net Income / Total assets.

Return on assets = $1,44,800 / $9,46,500 *100 = 15.2%.

Ans.7. Times earned ratio = Earning before interest and tax/ interest.

Times earned ratio = $2,55,000 / $26,900 = 9.47 times.

Ans.8. Profit Margin = Net profit / Net Sales *100.

Profit Margin = $1,44,800 / $2,064,000 *100 = 7.01%.