SHOW YOUR WORK FOR CALCULATION PROBLEMS Given the following information, calcula

ID: 2765722 • Letter: S

Question

SHOW YOUR WORK FOR CALCULATION PROBLEMS

Given the following information, calculate: (a) current ratio, (b) quick/acid-test ratio, (c) Total debt or leverage ratio, (d) Return on Assets, (e) Net Margin, (f) Return on Equity, (g) Asset Turnover, (h) Earnings Retention Ratio

SUMMARY BALANCE SHEET

ASSETS LIABILITIES & SH EQUITY

Cash & Equivalents $2,000 Accounts Payable $6,000

Accounts Receivable 7,000 Notes Payable 4,000

Inventory 5,000 Current Liabilities $10,000

Current Assets $14,000

Prepaid Expense $2,000 Long-term Debt $9,000

P, P & E (net) $20,000 SH Equity $17,000

Total Assets $36,000 Total Liab & SH Eq $36,000

SUMMARY OPERATING PERFORMANCE

Sales $50,000

Net Income 5,400

Dividends Paid 1,350

Explanation / Answer

Solution :

Current ratio

current asset/current liability

14000/10000

1.40

quick ratio

quick asset/quick liability

(14000-5000)/(10000)

0.90

QA=CA-inventory

debt to asset

debt/total asset

9000/36000

0.25

debt equity ratio

debt/equity

9000/17000

0.53

Return on assets

net income/ total asset

5400/36000

0.15

Net margin

net income/ sales

5400/50000

0.11

ROE

net income/stockholder equity

5400/17000

0.32

Asset turnover

NET SALES/ TOTAL ASSET

50000/36000

1.39

Earnings Retention Ratio

(Net income-Dividend)/net income

(5400-1350)/5400

0.75