Reference no: EM131097268

Total assets and owner's equity at the beginning of 2013 were $90,000 and $80,000, respectively. The owner made no investments in 2013 or 2014.

1. Compute the following measures of liquidity for 2013 and 2014: (a) working capital and (b) current ratio. Round your current ratio values to one decimal place.

Comment on the differences between the years.

The input in the box below will not be graded, but may be reviewed and considered by your instructor. Blank Item 5

2. Compute the following measures of profitability for 2013 and 2014: (a) profit margin, (b) asset turnover, (c) return on assets, (d) debt to equity ratio, and (e) return on equity. Round your answers to one decimal place.

Comment on the change in performance from 2013 to 2014.

The input in the box below will not be graded, but may be reviewed and considered by your instructor. blank Item 16

Hide FeedbackShow All FeedbackPartially CorrectCheck My Work Feedback1a.Working capital, which uses two elements of the classified balance sheet, is the amount by which current assets exceed current liabilities. It is an important measure of liquidity because current liabilities must be satisfied within one year or one operating cycle, whichever is longer, and current assets are used to pay the current liabilities. Thus, the working capital is what is on hand to continue business operations.

1b.The current ratio is the ratio of current assets to current liabilities. It is computed as follows:

Check figure: 2014 current ratio = 2.3 
2a.The profit margin shows the percentage of each sales dollar that results in net income. It is an indication of how well a company is controlling its costs: the lower its costs, the higher its profit margin. It is computed as follows:

2b.The asset turnover ratio measures how efficiently assets are used to produce sales. In other words, how much revenue is generated by each dollar of assets? It is computed as follows:

2c.The return on assets ratio relates net income to average total assets. It is computed as follows:

2d.The debt to equity ratio shows the proportion of a company's assets financed by creditors and the proportion financed by the owner. It is computed as follows:

2e.Return on equity is the ratio of net income to average owner's equity. It is computed as follows:

Check figure: 2014 return on equity = 15.6%Post Submission FeedbackSolution

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