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# Ratio Calculation

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Selected Financial Ratios [L03, l04]
The financial statements for Castile Products, Inc., an importer of consumer products, are given below:
Castile Products, Inc.
Balance Sheet December 31
Assets
Current assets:
Cash .
Accounts receivable, net .
Merchandise inventory .
Prepaid expenses .
Total current assets .
Property and equipment, net .
Total assets .
\$ 6,500 35,000 70,000 3,500
115,000 185,000
\$300,000
(continued)

(concluded)
Castile Products, Inc.
Balance Sheet December 31
Liabilities and Stockholders' Equity Liabilities:
Current liabilities .
Bonds payable, 10% .
Total liabilities .
Stockholders' equity:
Common stock, \$5 per value .
Retained earnings .
Total stockholders' equity .
Total liabilities and stockholders' equity .
\$ 30,000 140,000
\$ 50,000 80,000
130,000
170,000 \$300,000
Castile Products, Inc.
Income Statement
For the Year Ended December 31
Sales .
Cost of goods sold .
Gross margin .
Operating expenses .
Net operating income .
Interest expense .
Net income before taxes .
Income taxes (30%) .
Net income .
\$420,000 292,500
127,500 89,500
38,000 8,000
30,000 9,000
\$ 21,000
Account balances at the beginning of the year were: accounts receivable, \$25,000; and inventory, \$60,000. All sales were on account.

Compute financial ratios as follows:
Acid-test (quick) ratio.

Average collection period.

Average sale period.

Times interest earned.

#### Solution Preview

Selected Financial Ratios [L03, l04]
The financial statements for Castile Products, Inc., an importer of consumer products, are given below:
Castile Products, Inc.
Balance Sheet December 31
Assets
Current assets:
Cash .
Accounts receivable, net .
Merchandise inventory .
Prepaid expenses .
Total current assets .
Property and equipment, net .
Total assets .
\$ 6,500 35,000 70,000 3,500
115,000 185,000
\$300,000
(continued)

(concluded)
Castile Products, Inc.
Balance Sheet December 31 ...

#### Solution Summary

The solution explains how to calculate the following ratios for Castile Products - Acid-test (quick) ratio, Average collection period, Average sale period and Times interest earned.

\$2.49