Question

The balance sheet and income statement for the J. P. Robard Mfg. Company are given below. Calculate the following ratios: current ratio, debt ratio, times interest earned, average collection period, inventory turnover, fixed asset turnover, total assets turnover, gross profit margin, operating profit margin, operating return on assets, return on equity.
DATA
Balance Sheet: (000)
Cash	$500
Accounts receivable	2,000
Inventories	1,000
Current assets	$3,500
Net fixed assets	4,500
Total assets	$8,000
Accounts payable	$1,100
Accrued expenses	600
Short-term notes payable	300
Current liabilities	$2,000
Long-term debt	2,000
Owners' equity	4,000
Total liabilities and owners' equity	$8,000
Income Statement: (000)
Sales (all credit)	$8,000
Cost of goods sold	3,300
Gross profit	$4,700
Operating expenses (includes $500 depreciation)	3,000
Operating profit	$1,700
Interest expense	367
Earnings before taxes	$1,333
Income taxes (40%)	533
Net income	$800
SOLUTION
Calculate the following ratios:
Current ratio
Debt ratio
Times interest earned
Average collection period
Inventory turnover
Fixed asset turnover
Total assets turnover
Gross profit margin
Operating profit margin
Operating return on assets
Return on equity

Answer 1

Answer of Part a:

Current Ratio = Current Assets / Current Liabilities
Current Ratio = $3,500 / $2,000
Current Ratio = 1.75

Answer of Part b:

Debt Ratio = Debt / Total Assets
Debt Ratio = ($2,000 + $2,000) / $8,000
Debt ratio = $4,000 / $8,000
Debt Ratio = 0.5 or 50%

Answer of Part c:

Times Interest Earned = Operating Profit / Interest Expense
Times Interest Earned = $1,700 / $367
Times Interest Earned = 4.63 times

Average of Part d:

Accounts Receivable Turnover = Sales / Accounts Receivable
Accounts Receivable Turnover = $8,000 / 2,000
Accounts Receivable Turnover = 4 times

Average Collection Period = 365 days / Accounts Receivable Turnover
Average Collection Period = 365 / 4
Average Collection Period = 91.25 days

Answer of Part e:

Inventory Turnover = COGS / Inventory
Inventory turnover = $3,300 / $1,000
Inventory Turnover = 3.3 times

Answer of Part f:

Fixed Asset Turnover = Sales / Fixed Assets
Fixed Asset Turnover = $8,000 / $4,500
Fixed Assets Turnover = 1.78 times