A ratio that measures the ability of a company to survive for a long period of t

Question

A ratio that measures the ability of a company to survive for a long period of time and long term debt paying ability is called A liquidity ratio A solvency ratio An acid test ratio A debt coverage ratio Manin Company had an accounts receivable balance of $330.000 at the beginning of the year and a balance of $470,000 at the end of the year. For the year, net credit sales Tlo 000,000. What was the average collection period in days? 10 days 41 days 37 days Martin Company had net credit sales of $9,000.000, gross profit of $3,000.000 and an average invenlory of $ 1,500,000. What was the inventory tumovet? 6 times 5 times 2 times 4 times Profit margin is calculatcd using which of the following? a) Current assets and liabilities (incomc and net sales Cost of goods sold and net incomc Gross profit and net income Martin Company had net income of $600,000. and paid common shareholders dividends of560,000. The average number of shares outstanding of common stock was 60.000 shares with a market price of $70 per share. What was the pricc-camings ratio? Martin Company has $40,000 in cash, $10,000 in inventory. S50.000 in patents and $50,000 in current liabilities. What is the current ratio? 8 to 1 1 to 1 2 to 1 1.4 to 1

Explanation / Answer

Answer:7

A solvency ratio

Answer: 8

Avergae collection period = 365 days * (average accounts receivable / Net credit sales)

Average collection period = 365 * (400000/4000000)

Average collection period = 365*0.1 = 36.5 daysor 37 days

Working notes:

To calculate avergae accounts receivables:

Average accounts receivables= (Beginning A/R + Ending A/R)/2

= (330000+470000)/2

= 800000/2

= 400000

Answer:9

Inventory turnover = COGS/ Average inventory

Inventory turnover = (9000000 net credit sales - 3000000 gross profit)/1500000

= 6000000/1500000 = 4 times

Answer:10

Profit margin = Net income/ net sales

Answer:11

Price earning ratio = Market value of share price/ Earning per share

= $70/10 = 7times

Working note:

To calculate EPS:

EPS = (Net income- dividends on preferred stock)/ average no. of common shares outstanding

= (600000 - 0)/60000

= 600000/60000 = 10

Answer: 12

Current ratio = Current assets/current liabilities

Current ratio = (Cash + Inventory)/ current liabilities

= (40000+10000)/50000

= 50000/50000 = 1 to 1

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