1. Preparethefollowingratiosandshowallsupportforyourcomputations: (No partial cr

Question

1.

Preparethefollowingratiosandshowallsupportforyourcomputations:

(No partial credit given without work/computations)

a) Current Ratio
b) Quick Ratio
c) Working Capital
d) Accounts Receivable Turnover e) Average Collection Period
f) Inventory Turnover
g) Days in Inventory
h) Debt to Total Assets Ratio
i) Gross Profit Ratio
j) Profit Margin Ratio
k) Return on Assets Ratio
l) Asset Turnover Ratio

2.

Based on the ratios computed in 5) above, answer the following questions and use the financial statement ratios to support your answers where appropriate:

Do you feel that the company is able to meet its current and long term obligations as they become due?

Comment on the profitability of the company with respect to the various profitability ratios that you computed.

Would you lend money to this company for the long term?
Comment on the ability of the company to collect its receivables and mange inventory.

1 Particulars DR CR 22000 Depreciation expense Accumulated depreciation building Accumulated depreciqation equipment 12000 10000 9000 Interest expense Interest payable 9000 Income statement Sales Sales discount Net sales Beginning Purchase Purchase discount Freight in Ending inventory Cost of goods sold Gross profit Admi Salaries expense Utilities expense Repair expense Gas and oil expense Insurance expense Depreciation expense Total operating expense Net operating income Non operating expense and gains Interest expense Net income 865800 6100 859700 52500 720000 16400 12900 80000 689000 170700 n and selling expense 70700 11400 5900 7600 3500 22000 121100 49600 9000 40600 Retained earnings statement Beginning retained earnings Net income Dividend Ending retained earnings 67800 40600 11000 97400

Explanation / Answer

1. CURRENT ASSETS= $148700

CURRENT LIABILITIES= $46500

CURRENT RATIO= CURRENT ASSETS/ CURRENT LIABILITIES

                          =$(148700/46500)

                         =3.19:1

2. QUICK ASSETS= CURRENT ASSETS- INVENTORY

                            =$( 148700- 80000)

                            =$68700

QUICK RATIO= QUICK ASSETS/ CURRENT LIABLITIES

                    = $(68700/46500)

                      = 1.47:1

3. WORKING CAPITAL = CURRENT ASSETS- CURRENT LIABILITIES

                                   =$( 148700-46500)

                                   = $102200

4. ACCOUNTS RECEIVABLE TURNOVER RATIO = NET CREDIT SALES/ AVERAGE RECEIVABLES

                                                                          =$859700/ 42200

                                                                            =20.37 TIMES

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