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# Eromdit Inc - Calculate Ratios

Calculate liquidity, activity, debt, profitability, and valuation ratios for Eromdit Inc and prepare common size income statements and balance sheets. Please see the attachment.

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Calculate Ratios

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:

Eromdit Inc.

Current Ratio:

Current ratio = Current assets/Current liabilities
= 1,291,470/452,000
= 2.86

Working Capital:

Working capital = Current assets - Current liabilities
= 1,291,470 - 452,000
= 839,470

Inventory Turnover:

Inventory turnover = Sales/Inventory
= 3,074,000/320,000
= 9.61

Accounts Receivable Turnover:

Accounts receivable turnover = Sales/Average Net accounts receivable
= 3,074,000/[(471,470 + 564,550)/2]
= 5.93

Accounts Payable Turnover:

Accounts Payable Turnover = Total Supplier Purchases/Average Accounts Payable
=92,000/[(275,000+ 200,000)/2]
= 0.39

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:

Debt/Equity = Total Liabilities/Total Equity
= 732,000/799,470
= 0.92

Financial Leverage Ratio:

Financial leverage ratios provide an indication of the long-term solvency of the firm. Unlike liquidity ratios that ...

#### Solution Summary

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.

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