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    Calculating Accounting Ratios From a Balance Sheet

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    Problem 1
    Suppose a company has $350,000 in current assets. The company's current ratio is 1.25, and its quick ratio is 0.8. Compute the company's current liabilities and inventories.

    Problem 2
    Compute the price earnings (P/E) ratio given the following.
    Earnings per share: $1.70
    Cash flow per share: $2.50
    Price/cash flow ratio: 7.0 times

    Problem 3
    Suppose a company has a profit margin of 2.5% and an equity multiplier of 2.0. Its sales are $50,000. The common equity is $25,000. Compute its return on common equity (ROE).

    Problem 4
    The balance sheet and income statement for a company are shown below.

    Balance Sheet
    Cash $45,500 Accounts Payable $98,000
    Receivables 256,000 Notes Payable 39,000
    Inventories 141,500 Other Current Liabilities 121,000
    Total Current Assets $443,000 Total Current Liabilities $258,000
    Net Fixed Assets 160,500 Long-term debt 147,500
    Total Liabilities $405,500
    Common equity 262,000
    Total Assets $603,500 Total Liabilities and equity $667,500

    Income Statement
    Sales $1,404,500
    Cost of goods sold 1,240,000
    Selling, general, and administrative expenses 91,000
    Earnings before interest and taxes (EBIT) $73,500
    Interest expense 12,500
    Earnings before taxes (EBT) $61,000
    Federal and state income taxes (40%) 24,400
    Net income $36,600

    Compute the following ratios for the company.
    a) Current ratio
    b) Quick ratio
    c) Inventory turnover ratio
    d) Days sales outstanding (Assume 365 days in a year)
    e) Fixed assets turnover ratio
    f) Total assets turnover ratio
    g) Debt ratio
    h) Times-interest-earned ratio

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    https://brainmass.com/math/fractions-and-percentages/calculating-accounting-ratios-from-a-balance-sheet-503592

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    1.
    Current ratio = current assets/current liabilities
    1.25 = 350000/current liabilities
    1.25*current liabilities = 350000
    current liabilities = 350000/1.25
    current liabilities = $280,000

    Quick ratio = (Current assets - inventory)/current liabilities
    0.8 = (350000 - inventory)/280000
    0.8*280000 = 350000 - inventory
    224000 = 350000 - inventory
    inventory = 350000 - 224000
    inventory = $126,000

    2.
    P/E ratio = Price ...

    Solution Summary

    This solution shows how to calculate various accounting ratios from a balance sheet. The ratios calculated include:

    a) Current ratio
    b) Quick ratio
    c) Inventory turnover ratio
    d) Days sales outstanding (Assume 365 days in a year)
    e) Fixed assets turnover ratio
    f) Total assets turnover ratio
    g) Debt ratio
    h) Times-interest-earned ratio

    $2.19