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Financial Ratios
1. Liquidity ratios. Edison, Stagg, and Thornton have the following financial information at the close of business on July 10:
Edison
Stagg
Thornton
Cash
$4,000
$2,500
$1,000
Short-term investments
3,000
2,500
2,000
Accounts receivable
Inventory
1,000
4,000
Prepaid expenses
800
Accounts payable
200
Notes payable: short-term
3,100
Accrued payables
300
Long-term liabilities
3,800
2. Computation and evaluation of activity ratios. The following data relate to Alaska Products, Inc:
19X5
19X4
Net credit sales
$832,000
$760,000
Cost of goods sold
440,000
350,000
Cash, Dec. 31
125,000
110,000
Accounts receivable, Dec. 31
180,000
140,000
Inventory, Dec. 31
70,000
50,000
Accounts payable, Dec. 31
115,000
108,000
The company is planning to borrow $300,000 via a 90-day bank loan to cover short-term operating needs.
3. Profitability ratios, trading on the equity. Digital Relay has both preferred and common stock outstanding. The company reported the following information for 19X7:
Net sales
$1,500,000
Interest expense
120,000
Income tax expense
80,000
Preferred dividends
25,000
Net income
130,000
Average assets
1,100,000
Average common stockholders' equity
400,000
4. Financial statement construction via ratios. Incomplete financial statements of Lock Box, Inc., are presented below.
LOCK BOX, INC.
Income Statement
For the Year Ended December 31, 19X3
Sales
$ ?
?
Gross profit
$15,000,000
Operating expenses & interest
Income before tax
Income taxes, 40%
Balance Sheet
December 31, 19X3
Assets
Property, plant, &. equipment
Total assets
8,000,000
$24,000,000
Liabilities & Stockholders' Equity
Notes payable (short-term)
Bonds payable
Common stock
Retained earnings
Total liabilities & stockholders' equity
600,000 4,600,000
2,000,000
Further information:
Instructions:
Using the preceding data, complete the income statement and the balance sheet.
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