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# Calculation of Financial Ratios

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Calculation of Ratios

The financial information below was taken from the annual financial statements of
2006 2005
Current assets \$240,000 \$212,000
Current liabilities 80,000 90,000
Total liabilities 182,000 160,000
Total assets 520,000 480,000
Sales 400,000 370,000
Cost of goods sold 240,000 220,000
Inventory 100,000 125,000
Receivables 100,000 60,000
Net income 50,000 48,000
Net cash provided by operating activities 30,000 25,000

Instructions
Calculate the following ratios for Harris Company for 2006.
1. Current ratio.
2. Average collection period.
3. Current cash debt coverage ratio.
4. Debt to total assets ratio.
5. Cash debt coverage ratio.
6. Return on assets.
7. Profit margin ratio.
8. Asset turnover ratio.

#### Solution Preview

Calculate the following ratios for Harris Company for 2006.
1. Current ratio.
= Current assets / Current liabilities = 240,000 / 80,000 = 3

2. Average collection period.
= Current Accounts Receivable Balance / Average Daily Sales
= ...

#### Solution Summary

This Solution demonstrates how to calculate the requested financial ratios for Harris Company.

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