Use the balance sheets and other information provided, calculate the ratios iden
ID: 2751805 • Letter: U
Question
Use the balance sheets and other information provided, calculate the ratios identified below.
Hokie Corporation Comparative Balance Sheet
For the Years Ending December 31,2012 and 2013
(Millions of Dollars)
Assets 2012 2013
Current Assets:
Cash $ 2 $ 10
Accounts Receivable 16 10
Inventory 22 26
Total Current Assets $ 40 $ 46
Gross Fixed Assets $120 $124
Less Accumulated Depreciation (60) (64)
Net Fixed Assets 60 60
Total Assets $100 $106
Liabilities and Owner’s Equity
Current Liabilities:
Accounts Payable $ 16 $ 18
Notes Payable 10 10
Total Current Liabilities $ 26 $ 28
Long-term Debt $ 20 $ 18
Total Liabilities $ 46 $ 46
Owner’s Equity:
Common Stock $ 40 $ 40
Retained Earnings 14 20
Total Liabilities and Owners Equity $100 $106
~ Hokie had Net Income of $26 million for 2013
~ Hokie paid Cash Dividends of $20 million to common stockholders in 2013.
Calculate the following 2013 financial ratios of Hokie Corporation using the information given above:
i. current ratio
ii. acid test ratio
iii. debt ratio
iv. return on total assets
v. return on common equity
Explanation / Answer
i. Current ratio = Current Assets/Current Liabilities = 46/28 = 1.64
ii. Acid test ratio = Quick Assets/Current Liabilities
= (Current Assets-Inventories)/Current Liabilities = (46-26)/28 = 20/28 = 0.71
iii. Debt ratio = Total Debt/Total Assets = (Total Assets-Owners Equity)/Total Assets
= (106 – 60) / 106 = 46/106 = 0.43
iv. Return on total assets = EBIT/Total Net Assets = (26/106)*100 = 24.53%
v. Return on common equity = Net Income/Shareholders Equity = (26/60)*100 = 43.33%
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