Question

In: Finance

Financial Data for Energy Power Co. as of December 31, 2018: Inventory $200,000 Long-term debt 300,000...

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

Solutions

Expert Solution

ANS - 1) Current ratio = 1.91 : 1

- Current ratio = Current assest / Current liabilities.

  • Current assets = Inventory + cash + Marketable securities + Account recivables = 200,000 + 260,000 + 225,000 + 90,000 = 775,000.
  • Current Liabilities = Accrued wages + notes payable + account payable = 65,000 + 160,000 + 180,000 = 405,000.
  • Current Ratio = 775,000 / 405,000 = 1.913 : 1

ANS 2) = Acid ratio = 1.42 : 1

- The acid ratio is also known as Quick ratio = ( Current assets - Inventory ) / current liabilities.

  • Current assets - inventory = 775,000 - 200,000 = 575,000.
  • Acid ratio = 575,000 / 405,000 = 1.42 :1

Ans 3) Average collection period = 55 days

- Average collection period = 365 x ( average Account recievables /   Net Sales ) .

- Average collection period = 365 x ( 225,000 / 1,500,000 ) = 55.

Ans 4) Inventory turnover = 4.7

- Inventory turnover = Cost of goods sold / average inventory .

- Inventory turnover = 940,000 / 200,000 = 4.7


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