Computing ratios) Use the information from the balance sheet and income statemen

Question

Computing ratios) Use the information from the balance sheet and income statement in the popup window,, to calculate the following ratios a. Current ratio b. Acid-test ratio c. Times interest earned d. Inventory turnover e. Total asset turnover f. Operating profit margin g. Days in receivables h. Operating return on assets i. Debt ratio j. Fixed asset turnover k. Return on equity a. The current ratio isX. (Round to two decimal places.) b. The acid-test ratio is (Round to two decimal places.) c. The times interest earned is X. (Round to two decimal places.) d. The inventory turnover isX (Round to two decimal places.) e. The total asset turnover [X (Round to two decimal places.) f. The operating profit margin is %. (Round to one decimal place.) g. The days in receivables aredays. (Round to two decimal places.) h. The operating return on assets is %. (Round to one decimal place.) i. The debt ratio is %. (Round to one decimal place.)

Explanation / Answer

Soln : a) Current ratio = Current Assets/Current Liabilities = 198000/155000 = 1.28

b) Acid test or quick ratio = (Cash + accounts receivable) /Current Liabilities = (97000+37000)/155000 = 0.86

c) Time interest earnes or interest coverage ratio = EBIT (Earning before interest and taxes/interest expense = 76000/14000 = 5.43

d) Inventory turnover = Cost of goods sold/avg. Inventory = 82000/48000 = 1.71

e) The Total asset turnover = Total sales/ total assets = 212000/533000 = 0.398

f) The operating profit margin = Operating profit /Sales = 76000/212000 = 0.36

g) The days in receivables are = Accounts receivable/(Avg. sales/365) = 37000/(212000/365) = 63.70 = 64 days

h) The operating return on assets = operating profit/total assets = 76000/533000 = 0.14

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