Unit 4 DESGN PAGE LAYOUT REFERENCES MALINGS REVEW VIEW CALCULATING FINANCIAL RAT
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Unit 4 DESGN PAGE LAYOUT REFERENCES MALINGS REVEW VIEW CALCULATING FINANCIAL RATIOS AND APPLYING RATIO ANALYSIs You are considering investing in Acme Incorporated. The company has provided you with the balance sheet and income statement for the previous yea Current price of one share of stock is $46.25 Earning per share last year was $1.86 1. Explain how the balance shoet and income statements differ? 2. Calculate the requested financial ratios a Current ratio b. Quick/Acid Test ratio Debe-to-equity ratio d. Return on sales (use net income AFTER taxes) e Return on equity (use net income AFTER taxes) Eanings per share (use net income AFTER taxes) invest in Acme Incorporated? Why or why not? Discuss in detail each ratio calculation and what you derive individual Ratios and then again all of them together. What kind of picture do you get about ACME from this information?Explanation / Answer
1) Income statement shows the profitability of an enterprise during a given period where as the balance sheet shows the financial position of the enterprise on a particular date. Income statement shows how operations are earning income and incurring expenses, where as the Balance sheet shows how the funds are sourced and how the funds have been applied in to the business. 2) Calculation of Ratios a) Current Ratio = Current Assets/Current Liabilities 2.09 times Current Assets $2,066,586 Current Liabilities $990,052 b) Quick/Acid Test Ratio= (Current Assets-Inventory)/Current Liabilities 1.87 times Inventory $218,156 c) Debt to Equity Ratio = Long Term Debt/Equity 28.97% Long Term Debt $638,250 Equity $2,203,437 d) Return on Sales = Net Income after Taxes/Sales 16.18% Net Income after Taxes $662,049 Sales $4,090,970 e) Return on Equity=Net Income after Taxes/Equity 30.05% Equity $2,203,437 f) Earning per share=Net income after taxes/No of outstanding equity shares $1.93 No of outstanding equity shares 342196 3) The Company is very good and all the ratios are in acceptable range.
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