2008 2009 Cash Marketable Securities Accounts Receivable Inventories Total Curre

Question

2008 2009 Cash Marketable Securities Accounts Receivable Inventories Total Current Assets 10,000.00 50,000.00 20,000.00 30,000.00 110,000.00 15,000.00 70,000.00 15,000.00 45,000.00 145,000.00 Equipment & Furniture Building Less Accumulated Depreciation Total Net Fixed Assets 110,000.00 220,000.00 40,000.00) 290,000.00 30,000.00 220,000.00 (50,000.00) 300,000.00 TOTAL ASSETS 400,000.00 445,000.00 Accounts Payable Short Term Loan Accrued Expense Payable Total Current Liabilities 15,000.00 40,000.00 5,000.00 60,000.00 20,000.00 40,000.00 10,000.00 70,000.00 Mortgage Long Term Loan Total Long Term Liabilities 80,000.00 60,000.00 140,000.00 80,000.00 80,000.00 160,000.00 Total Liabilities 200,000.00 230,000.00 Common Stock Retained Earnings Total Equity 150,000.00 50,000.00 200,000.00 150,000.00 65,000.00 215,000.00 TOTAL LIABILITIES & EQUITY 400,000.00 445,000.00 ADDITIONAL INFORMATION Sales Income Before Interest & Tax Income After Interest & Tax Shares Outstandin Cost Of Goods Sold Market Price Per Share 2008 2009 500,000.00 200,000.00 100,000.00 600,000.00 230,000.00 10,000.00 150,000 150,000 80,000.00 2.75

Explanation / Answer

a. Amount of current assets to cover every dollar of current liabilities = Current ratio = Current assets / Current Liabilities = 145,000 / 70,000 = $2.07

b. For every dollar invested by stockholders, the amount invested by creditors = Debt / Equity ratio = Long term loan / Total equity = 80,000 / 215,000 = $0.37

c. On an average, time taken by the company to collect its accounts receivables = Accounts receivables turnover Ratio = Net credit sales / Average accounts receivables = 600,000 / 17,500 = 34.28 days

d. Return on the company's assets in generating revenue = (Income after interest and tax / Average total assets) * 100 = (110,000 / 422,500) * 100 = 26.03%

e. Return generated for each dollar invested by stockholder = (Income after interest and tax / total equity) * 100 = (110,000 / 215,000) * 100 = 51.16%

f. Relationship between stock price and company's earnings = EPS = Income after interest and tax / No. of shares outstanding = 110,000 / 150,000 =$ 0.73

g. Working capital used by the company to generate sales = Working Capital turnover Net sales / working capital = 600,000 / 75,000 = 8

h. Liabilities to cover for every dollar of assets = Total debt to total assets ratio = Total debt / Total Assets = 230,000 / 445,000 = $0.51

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