Question

Question 1

Sales	$500,000
Liabilities	$150,000
Assets	$250,000
Equity	$100,000
Net Income	$20,000
Profit before Tax	$40,000

Calculate the Return on Equity and Asset Turnover Ratio:

A)  40% and 2

B)  40% and 1/2

C)  20% and   1/4

D)  20% and 2

Question 2

	2018	2019
Sales	100	110
Cost of Goods Sold	50	60
Net Income	10	14
Equity	50	60
Inventory	15	20
Current Assets	20	15
Current Liabilities	22	20
Total Liabilities	40	60
Total Assets	90	120

Calculate Return on Equity and Asset Turnover for 2019

A)   23% and .92

B)   20% and .92

C)   23% and 1.1

D)  20% and 1.1

Question 3

Interpret which Financial Ratios Show improvement in 2019

1. Return on Equity, Current Ratio, Inventory Turnover
2. Asset Turnover, Current Ratio, Debt to Equity
3. Return on Equity, Asset Turnover, Current Ratio, Debt to Equity, Inventory Turnover
4. Return on Equity

Answer 1

Current Ratio = Current Asset / Current Liability

Return on Equity = PAT / Shareholders fund

Inventory turnover = Cost of goods sold / Inventories

Asset Turnover = Sales / Asset

Debt to Equity = Debt / Equity

Question1

Return on Equity = PAT / Shareholders fund

= 20000 / 100000 = 20% Answer

Asset Turnover = Sales / Asset

= 500,000 / 250,000 = 2 Answer

Option D is correct.

Question 2

Financial Ratio	2018	2019	Trend
Current Ratio	20/22 = 0.91	15/20 = 0.75	Decreasing
Return on Equity	10/50= 20%	14/60=23.3%	Increasing
Inventory Turnover	50/15= 3.33	60/20= 3	Decreasing
Debt to equity	40/90= 0.44	60/120= 0.5	Increasing
Asset Turnover	100/90= 1.1	110/120= 0.92	Decreasing

Option A is correct

Question 3

Out of this only option D is correct as ROE is increasing.

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