Calculate liquidity, activity, debt, profitability, and valuation ratios for Eromdit Inc and prepare common size income statements and balance sheets. Please see the attachment.
Week 9 - Performance Evaluation
1. Calculate the liquidity (current ratio, working capital, inventory turnover), activity (accounts receivable turnover, accounts payable turnover, days' sales in accounts payable), debt (debt/equity, financial leverage ratio), profitability (gross margin, operating margin, net margin) ratios for Eromdit Inc. based on their 2003 financial statements. Financial statements are at the bottom of the page:
Current ratio = Current assets/Current liabilities
Working capital = Current assets - Current liabilities
= 1,291,470 - 452,000
Inventory turnover = Sales/Inventory
Accounts Receivable Turnover:
Accounts receivable turnover = Sales/Average Net accounts receivable
= 3,074,000/[(471,470 + 564,550)/2]
Accounts Payable Turnover:
Accounts Payable Turnover = Total Supplier Purchases/Average Accounts Payable
Days' Sales in Accounts Payable:
Days' Sales in Accounts Payable
= Accounts Payable/Cost of Sales x Number of days
= 275,000/2,077,000 x 365 days
= 48.33 days
Debt/Equity = Total Liabilities/Total Equity
Financial Leverage Ratio:
Financial leverage ratios provide an indication of the long-term solvency of the firm. Unlike liquidity ratios that ...
This solution is comprised of a detailed explanation to calculate liquidity, activity, debt, profitability, and valuation ratios for Eromdit Inc and prepare common size income statements and balance sheets.