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Financial Ratios calculation

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Table 1 (use for Problems 24-27)
Smith Company Balance Sheet

Assets:
Cash and marketable securities $300,000
Accounts receivable 2,215,000
Inventories 1,837,500
Prepaid expenses 24,000
Total current assets $3,286,500
Fixed assets 2,700,000
Less: accumulated depreciation 1,087,500
Net fixed assets $1,612,500
Total assets $4,899,000
Liabilities:
Accounts payable $240,000
Notes payable 825,000
Accrued taxes 42,500
Total current liabilities $1,107,000
Long-term debt 975,000
Owner's equity 2,817,000
Total liabilities and owner's equity $4,899,000
Net sales (all credit) $6,375,000
Less: Cost of goods sold 4,312,500
Selling and administrative expense 1,387,500
Depreciation expense 135,000
Interest expense 127,000
Earnings before taxes $412,500
Income taxes 225,000
Net income $187,500
Common stock dividends $97,500
Change in retained earnings $90,000

24. Based on the information in Table 1, the current ratio is:
a. 2.97.
b. 1.46.
c. 2.11.
d. 2.23.

25. Based on the information in Table 1, and using a 360-day year, the average collection period is:
a. 71 days.
b. 84 days.
c. 64 days.
d. 125 days.

26. Based on the information in Table 1, the debt ratio is:
a. 0.70.
b. 0.20.
c. 0.74.
d. 0.42.

27. Based on the information in Table 1, the net profit margin is:
a. 4.61%.
b. 2.94%.
c. 1.97%.
d. 5.33%.

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https://brainmass.com/business/business-math/financial-ratios-calculation-245527

Solution Preview

Answers.

24. Current ratio = Current assets / Current liabilities
= $3,286,500 / $1,107,000
= 2.9688 or approximate to 2.97

Thus, the answer is = a. 2.97.

25. average collection ...

Solution Summary

This solution is comprised of the step-by-step calculation of the current ratio, the average collection period, debt ratio, and the net profit margin.

$2.19
See Also This Related BrainMass Solution

Eagle Company financial data: compute ROA, current ratio, acid-test, profit margin, inventory turnover, debt-equity ratio

Using the following financial statements for Eagle Company, compute the required ratios:

EAGLE COMPANY BALANCE SHEET AS OF December 31 (IN MILLIONS)
2007 2008 2009
Assets
Cash $2.6 $1.8 $1.6
Government securities 0.4 0.2 0.0
Accounts and notes receivable 8.0 8.5 8.5
Inventories 2.8 3.2 2.8
Prepaid assets 0.7 0.6 0.6
Total current assets $14.5 $14.3 $13.5
Property, plant, and equipment (net) 4.3 5.4 5.9
Total assets $18.8 $19.7 $19.4
Liabilities and shareholders' Equity
Notes payable $3.2 $3.7 $4.2
Accounts payable 0.9 1.1 1.0
Total current liabilities $6.9 $8.5 $9.3
Long-term debt, 6% interest 3.0 2.0 1.0
Total liabilities $9.9 $10.5 $10.3
Shareholders' equity 8.9 9.2 9.1
Total liabilities and shareholders' equity $18.8 $19.7 $19.4
Income Statement for the Year Ended December 31 (in millions)
Net sales $24.2 $24.5 $24.9
Cost of goods sold (16.9) (17.2) (18.0)
Gross margin $7.3 $7.3 $6.9
Selling and administrative expenses (6.6) (6.8) (7.3)
Earnings (loss)before taxes $0.7 $0.5 $(0.4)
Income taxes (0.3) (0.2) 0.2
Net income $0.4 $0.3 $(0.2)

Required
A. What is the rate of return on total assets for 2009?
B. What is the current ratio for 2009?
C. What is the quick (acid-test) ratio for 2009?
D. What is the profit margin for 2008?
E. What is the profit margin for 2009?
F. What is the inventory turnover for 2008?
G. What is the inventory turnover for 2009?
H. What is the rate of return on stockholders' equity for 2008?
I. What is the rate of return on stockholders' equity for 2009?
J. What is the debt-equity ratio for 2009?

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