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

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