Given the following information, calculate: (a) current ratio, (b) quick/acid-te
ID: 2675373 • Letter: G
Question
Given the following information, calculate: (a) current ratio, (b) quick/acid-test ratio, (c) Total debt or leverage ratio, (d) Return on Assets, (e) Net Margin, (f) Return on Equity, (g) Asset Turnover, (h) Earnings Retention RatioSUMMARY BALANCE SHEET
ASSETS LIABILITIES & SH EQUITY
Cash & Equivalents $2,000 Accounts Payable $6,000
Accounts Receivable 7,000 Notes Payable 4,000
Inventory 5,000 Current Liabilities $10,000
Current Assets $14,000
Prepaid Expense $2,000 Long-term Debt $9,000
P, P & E (net) $20,000 SH Equity $17,000
Total Assets $36,000 Total Liab & SH Eq $36,000
SUMMARY OPERATING PERFORMANCE
Sales $50,000
Net Income 5,400
Dividends Paid 1,350
Explanation / Answer
Current ratio = current assets / current liabilities = 14,000 / 10,000 = 1.4 Acid test ratio = (current assets - inventory)/ current liabilities = (14,000-5,000)/10,000 = 0.9 Total debt ratio = debt / SH equity = 9,000 / 17,000 = 0.53 Return on assets = Net income / Total assets = 5,400 / 36,000 = 15.00% Net margin = Net income / Sales = 5,400 / 50,000 = 10.80% Return on equity = Net income / SH equity = 5,400 / 17,000 = 31.76% Asset turnover = Sales / Total assets = 50,000 / 36,000 = 1.39 Earnings retention ratio = 1 - Dividends / Net Income = 1 - 1,350/5,400 = 0.75
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