Solution-Compute the current ratio and return on equity

Compute the current ratio and return on equity

Reference no: EM131198212

BUSINESS Comprehensive Problem 1 Version FALL B

Use the following information to answer the questions below:

note: all sales are credit sales

Income Stmt info:	2014	2015
Sales	$ 1,050,000	$ 1,128,750
less Cost of Goods Sold:	325,000	346,125
Gross Profit	725,000	782,625
Operating Expenses	575,000	609,500
Earnings before Interest & Taxes	150,000	173,125
Interest exp	25,000	29,000
earnings before Taxes	125,000	144,125
Taxes	50,000	57,650
Net Income	$ 75,000	$ 86,475

Balance Sheet info:	12/31/2014	12/31/2015
Cash	60,000	$ 66,000
Accounts Receivable	80,000	$ 83,200
Inventory	110,000	$ 119,900
Total Current Assets	$ 250,000	$ 269,100
Fixed Assets (Net)	$ 300,000	$ 318,000
Total Assets	$ 550,000	$ 587,100

Current Liabilities	$ 130,000	$ 136,500
Long Term Liabilities	$ 150,000	$ 170,000
Total Liabilities	$ 280,000	$ 306,500
Stockholder's Equity	$ 270,000	$ 280,600
Total Liab & Equity:	$ 550,000	$ 587,100

Compute each of the following ratios for 2014 and 2015 and indicate whether each ratio was getting "better" or "worse" from 2014 to 2015 and whether the 2015 ratio was "good" or "bad" compared to the Industry Avg. (round all numbers to 2 digits past the decimal place)

	2014	2015	Getting Better or Getting Worse?	2015 Industry Avg	"Good" or "Bad" compared to Industry Avg
Profit Margin				0.11
Current Ratio				1.90
Quick Ratio				1.12
Return on Assets				.26
Debt to Assets				.55
Receivables turnover				18.00
Avg. collection period*				21.20
Inventory Turnover**				8.25
Return on Equity				0.25
Times Interest Earned				8.15

*Assume a 360 day year

**Inventory Turnover can be computed 2 different ways. Use the formula listed in the text

(the one the text indicates many credit reporting agencies generally use).

Reference no: EM131198212

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Compute the current ratio and return on equity

Reference no: EM131198212

Reference no: EM131198212

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