Question

Financial Data for Energy Power Co. as of December 31, 2018:

Inventory	$200,000
Long-term debt	300,000
Interest expense	15,000
Accumulated depreciation	440,000
Cash	260,000
Net sales (all credit)	1,500,000
Common stock	800,000
Accounts receivable	225,000
Operating expense (incl. depr. Exp. And taxes)	525,000
Notes payable-current	180,000
Cost of goods sold	940,000
Plant and equipment	1,300,000
Accounts payable	160,000
Marketable securities	90,000
Accrued wages	65,000
Retained earnings	130,000

1. From the information presented in Tables Above, calculate the following ratios for the Springfield Power Co.
   1. current ratio
   2. acid test ratio
   3. average collection period
   4. inventory turnover
   5. gross profit margin
   6. operating profit margin
   7. net profit margin
   8. total asset turnover
   9. times-interest-earned

Answer 1

Part i ) Current ratio = Current assets / Current liabilities

Current assets = Inventory + Cash + Accounts receivable + Marketable securities

= 200,000 + 260,000 + 225,000 +90,000 = 775,000

Current liabilities = Notes payable + Accounts payable + Accrued wages = 180,000 + 160,000 + 65,000 = 405,000

Current ratio = 775,000 / 405,000 = 1.91

Part ii ) Acid test ratio = Quick assets / Current liabilities

Quick assets = Cash + Accounts receivable + Marketable securities = 260,000 + 225,000 +90,000 = 575,000

Acid test ratio = 575,000 / 405,000 = 1.42

Part iii ) Average collection period = Average accounts receivable / Net credit sales * 365

Average accounts receivable = 225,000 / 2 = 112,500

Average collection period = 112,500 / 1,500,000 * 365 = 27.375 days

Part iv ) Inventory turnover = COGS / Average Inventory

Average Inventory = 200,000 / 2 = 100,000

Inventory turnover = 940,000 / 100,000 = 9.4 times

Part v ) Gross profit margin = ( Total revenue - COGS ) / Total revenue

Gross profit margin = 1,500,000-940,000 / 1,500,000 = 37.33%