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    Calculate the ratio's for Company A.

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    Calculate the ratio's for Company A.

    Company A Balance Sheet:

    Assets:
    Cash- 15000
    acct receivable- 22000
    inventory- 30000
    current assets- 67000
    net fixed assets- 73000
    total assets- 140000

    Liabilities:
    acct payable- 21000
    notes payable- 20000
    accrued expenses- 5000
    current liabilities- 46000
    long term debt- 30000
    stockholder's equity- 64000
    Total liability & stockholder equity- 140000

    INCOME STATEMENT
    Sales (all on credit)- 120000
    less: cost of goods sold- 45000
    gross profit- 75000
    selling & administrative expense- 20000
    rent expense- 8000
    EBIT- 47000
    Interest Expense- 5000
    earnings before taxes- 42000
    taxes @ 25%- 10500
    net income- 31500

    Common shares outstanding- 15000
    EPS- 2.10

    RATIO's
    1. Profit Margin:
    2. Return on assets:
    3. return on equity:
    4. receivables turnover
    5. avg. collection period:
    6. inventory turnover:
    7. fixed asset turnover:
    8. total asset turnover:
    9. current ratio:
    10. quick ratio:
    11. debt to total assets:
    12. times interest earned:
    13. fixed charge coverage:

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    Solution Preview

    Profitability ratios offer several different measures of the success of the firm at generating profits.

    The gross profit margin is a measure of the gross profit earned on sales. The gross profit margin considers the firm's cost of goods sold, but does not include other costs. It is defined as follows:

    1. Gross Profit Margin = (Sales - Cost of Goods Sold) / Sales
    = (120,000 - 45,000) / 120,000
    = 0.625

    Return on assets is a measure of how effectively the firm's assets are being used to generate profits. It is defined as:

    2. Return on Assets = Net Income / Total Assets
    = 31,500 / 140,000
    = 0.225

    Return on equity is the bottom line measure for the shareholders, measuring the profits earned for each dollar invested in the firm's stock. Return on equity is defined as follows:

    3. Return on Equity = Net Income / Shareholder Equity
    = 31,500 / 64,000
    = 0.49

    4. Receivables turnover is an indication of how quickly the firm collects its accounts receivables and is defined as follows:

    Receivables Turnover
    = Annual Credit Sales / Accounts Receivable
    = 120,000 / 22,000
    = 5.55

    The receivables turnover often is reported in terms of the number of days that credit sales remain in accounts receivable ...

    $2.19