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Question 3

Fifty-five (55) percent of Assesso Mining Inc.’s assets are financed with common equity, which is the only type of equity financing the company has. Assesso’s current ratio is 4.0, its total assets turnover is 3.0, current assets are $140,000, and sales are $2,000,000. What are Assesso’s long term liabilities, and what amount is short term (current liabilities)?

Answer 1

55% of Asset is financed by common equity. Total Assets Turnover = 3, Current Assets = $ 140000, Current Ratio = 4, Sales = $ 2000000

Current Ratio = Current Assets / Current Liabilities = 4

140000 / Current Liabilities = 4

Current Liabilities = 140000 / 4 = $ 35000

Total Assets Turnover = (Sales / Total Assets) = 3

2000000 / 3 = Total Assets

Total Assets = $ 666666.67

If 55% is equity financing, then debt financing = (100 - 55) = 45 %

Therefore, Debt = 0.45 x 666666.67 = $ 300000

Total Long-Term Liabilities = Debt - Current Liabilities = 300000 - 35000 = $ 265000