A. From the simplified balance sheet and income statement of the business below,
ID: 2492449 • Letter: A
Question
A. From the simplified balance sheet and income statement of the business below, compute the following ratios. Assume that the June 30 amounts for total assets and owner's equity also represent their average amounts for the period. Round percentages to the nearest whole percent.
a. Working capital
b. Current ratio
c. Profit margin
d. Return on assets
e. Debt to equity ratio
f. Return on equity
g. Asset turnover
Keene Industries
Balance Sheet
June 30, 20x5
Assets
Liabilities
$ 8,000
$ 8,000
4,000
12,000
$20,000
24,000
4,000
Owner's Equity
20,000
$40,000
$40,000
Keene Industries
Income Statement
For the Year Ended June 30, 20x5
$48,000
24,000
$24,000
19,200
$ 4,800
B. Discuss the liquidity and profitability of Keene Industries.
Keene Industries
Balance Sheet
June 30, 20x5
Assets
Liabilities
Current assets$ 8,000
Current liabilities$ 8,000
Investments4,000
Long-term liabilities12,000
Property, plant, and Total liabilities$20,000
equipment24,000
Intangible assets4,000
Owner's Equity
Kathy Keene, Capital20,000
Total liabilities and Total assets$40,000
owner's equity$40,000
Explanation / Answer
A.
Working capital = current assets - current liabilities
= 8000 - 8000 = 0
Current ratio = current assets / current liabilities
= 8000 / 8000 = 1
Profit margin = net income / net sales
= 4800 / 48000 = 0.1
Return on assets = net income / total assets
= 4800 / 40000 = 0.12
Debt to equity ratio = long term debt / equity shareholders fund
= 12000 / 20000 = 0.6
Return on equity = net income / share holders equity
= 4800 / 20000 = 24%
Asset turnover ratio = net sales / average total assets
= 48000 / 40000 = 1.2
B. keene industries can improve their liquidity because current ratio is under stated. and better in profitability.
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