Question

SHOW YOUR WORK FOR CALCULATION PROBLEMS

Given the following information, calculate: (a) current ratio, (b) quick/acid-test ratio, (c) Total debt or leverage ratio, (d) Return on Assets, (e) Net Margin, (f) Return on Equity, (g) Asset Turnover, (h) Earnings Retention Ratio

SUMMARY BALANCE SHEET

ASSETS                                   LIABILITIES & SH EQUITY

Cash & Equivalents $2,000    Accounts Payable $6,000

Accounts Receivable 7,000    Notes Payable         4,000

Inventory                  5,000     Current Liabilities $10,000

Current Assets      $14,000

     Prepaid Expense $2,000         Long-term Debt   $9,000

     P, P & E (net)     $20,000        SH Equity           $17,000

    

     Total Assets        $36,000       Total Liab & SH Eq $36,000

SUMMARY OPERATING PERFORMANCE

     Sales               $50,000

     Net Income         5,400

     Dividends Paid    1,350

Answer 1

a) Current ratio =Current assets/Current Liabilities =14000/10000 =1.4
b)Quick Ratio =(Current assets-Inventories)/Current Liabilities =(14000-5000)/10000 =0.9
c) Total Debt ratio =(Current Liabilities + Long term debt)/Total assets =(10000+9000)/36000 =0.53
d) Return on Assets =Net Income/Total Assets =5400/360000=0.15
e) Net Profit Margin =Net Income/Sales =5400/50000 =0.108
f)Return on equity =Net Income/Equity =5400/17000=0.32
g)Asset Turnover =Sales/Total Assets =50000/36000=1.39
h) Earnings Retention Ratio =1-Dividend/Net Income =1-1350/5400 =0.75