SCULLY CORPORATION Balance Sheets December 31 2010 2009 Cash $4,300 $ 3,700 Acco

Question

SCULLY CORPORATION
Balance Sheets
December 31
2010 2009
Cash $4,300 $ 3,700
Accounts receivable 21,200 23,400
Inventory 10,000 7,000
Land 20,000 26,000
Building 70,000 70,000
Accumulated dep. (15,000) (10,000)
Total $110,50 $120,100


Accounts payable $ 12,370 $ 31,100
Common stock 75,000 69,000
Retained earnings 23,130 20,000
Total $110,500 $120,100

I need to find the following:

(a) Current ratio
(b) Acid-test ratio
(c) Receivables turnover
(d) Inventory turnover
(e) Profit margin %
(f) Asset turnover
(g) Return on assets %
(h) Return on common stockholders; equity %
(i) Debt to total assets ratio

Explanation / Answer

Calculating the ratios for the current year 2010: a) Current ratio for 2010:                              Current ratio = Current assets / Current liabilities                                                  = (Cash + Accounts receivable + Inventory) / Accounts payable                                                  = ($4,300 + $21,200 + $10,000) / $12,370                                                  = $35,500 / $12,370                                                  = 2.87 times b)                       Acid test ratio = (Current assets - Inventory )/ Current liabilities                                                  = ($35,500 - $10,000) / $12,370                                                  = $25,500 / $12,370                                                  = 2.06 times c)              Receivables turnover ratio = Sales / Accounts receivables                                                           Since the income statement is not provided, we cant get the sales figure. If you have the income statement, you just substitute the sales figure in the above formula. d)              Inventory turnover ratio = Cost of goods sold / Average inventory Since the income statement is not provided, we cant get the Cost of goods sold figure. If you have the income statement, you just substitute the COGS figure in the above formula. e)               Profit margin ratio = Net income / Sales Since the income statement is not provided, we cant get the sales and net income figure. If you have the income statement, you just substitute the sales figure and net income in the above formula. f)             Asset turnover ratio = Sales / Average Total assets Since the income statement is not provided, we cant get the sales figure. If you have the income statement, you just substitute the sales figure in the above formula. g)          Return on assets = Net income / Total assets Since the income statement is not provided, we cant get the Net income figure. If you have the income statement, you just substitute the Net income figure in the above formula. h) Return on equity = Net income / Total equity Since the income statement is not provided, we cant get the Net income figure. If you have the income statement, you just substitute the Net income figure in the above formula. i) Debt-total asset ratio = Total debt / Total assets                                     = (Total assets - Total Equity) / Total assets                                     = ($110,500 - $98,130) / $110,500                                     = $12,370 / $110,500                                    = 0.112 times Therefore, the debt ratio for 2010 is 0.112 times

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