Question

Review of Financial Ratios

In its closing financial statements for its first year in business, the Runs and Goses Company, had cash of $242, accounts receivable of $850, inventory of $820, net fixed assets of $3,408, accounts payable of $700, short-term notes payable of $740, long-term liabilities of $1,100, common stock of $1,160, retained earnings of $1,620, net sales of $2,768, cost of goods sold of $1,210, depreciation of $360, interest expense of $160, taxes of $312, addition to retained earnings of $508, and dividends paid of $218. (Hint: use Excel to organized the calculations).

Calculate:

Return on equity = ??

Return on total assets = ??

Gross profit margin = ??

Net profit margin = ??

Operating profit margin = ??

Sales to total asset ratio = ??

Current ratio = ??

Debt ratio = Total debt / Total asset = ??

Debt / Equity ratio = ??

Equity multiplier = ??

Interest coverage ratio = ??

Answer 1

Sales to Asset Ratio = Net Sales / Total Assets

Total Assets = Cash of $242, accounts receivable of $850, inventory of $820, net fixed assets of $3,408

Tota Assets = $5320

Sales to Asset Ratio = 2768 / 5320

Sales to Asset Ratio = .52 times

Current Ratio = Current Assets / Current Liabilities

Current assets = Total assest - Fixed assets

Current liabilities = Accounts payable + Short term notes payable

Current Ratio = (5320-3408) / (700+740)

Current Ratio = 1912 / 1440

Current Ratio = 1.32

Debt Ratio = Total debt / Total assets

Debt Ratio = 1100 / 5320

Debt Ratio = .21

Debt Equity Ratio = Debt / Equity

Equity = Common stock + Retained earnings

Debt equity ratio = 1100 / (1160 + 1620)

Debt to equity ratio = .39