Question

Calculate the following ratios for Year 3 and Year 4. Since Year 2 numbers are not presented do not use averages when calculating the ratios for Year 3. Instead, use the number presented on the Year 3 balance sheet. a. Net margin. (Round your answers to 2 decimal places.) b. Return on investment. (Round your answers to 2 decimal places.) c. Return on equity. (Round your answers to 2 decimal places.) d. Earnings per share. (Round your answers to 2 decimal places.) e. Price-earnings ratio (market prices at the end of Year 3 and Year 4 were $5.99 and $4.96, respectively). (Round your intermediate calculations and final answers to 2 decimal places.) f. Book value per share of common stock. (Round your answers to 2 decimal places.) g. Times interest earned. Exclude extraordinary income in the calculation as they cannot be expected to recur and, therefore, will not be available to satisfy future interest payments. (Round your answers to 2 decimal places.) h. Working capital. i. Current ratio. (Round your answers to 2 decimal places.) j. Quick (acid-test) ratio. (Round your answers to 2 decimal places.) k. Accounts receivable turnover. (Round your answers to 2 decimal places.) l. Inventory turnover. (Round your answers to 2 decimal places.) m. Debt-to-equity ratio. (Round your answers to 2 decimal places.) n. Debt-to-assets ratio. (Round your answers to the nearest whole percent.)

Answer 1

Answer:

Ratios.

A. Net Margin = Net income divided by Net sales

Year 3 = $33,600 / $181,200 = 18.54%

Year 4 = $43,100 / $220,800 = 19.52%

B. Return on Investment = Net income divided by (total Assets minus Current Liability)

Year 3 = $33,600 / $105,400 = 31.88%

Year 4 = $43,100 / $126,300 = 34.13%

C. Return on Equity = Net income divided by Shareholders equity

Year 3 = $33,600 / $110,900 = 30.30%

Year 4 = $43,100 / $157,000 = 27.45%

D. Earnings Per share = (Net Income minus preferred shareholders dividend) divided by outstanding ordinary shares in issue

Year 3 = $33,600 / 48,000 shares = $0.7

Year 4 = $43,100 / 48,000 shares = $0.90

E. Price Earning Ratio = Share Price divided by Earnings Per share

Year 3 = $5.99 / $0.7 = 8.56

Year 4 = $4.96 / $0.9 = 5.51

F. Book value per share of common stock = (shareholders equity minus preferred stock) divided by outstanding common stock in issue

Year 3 = $110,900 / 48,000 shares = $2.31

Year 4 = $157,099 / 48,000 shares = $3.27

G. Times interest earned = net income divided by Interest expense

Year 3 = $33,600 / $16,000 = 2.1

Year 4 = $43,100 / $21,000 = 2.05

H. Working Capital = Current Assets minus Current Liabilities

Year 3 = $141,700 - $70,900 = $70,800

Year 4 = $150,000 - $55,000 = $95,000

I. Current Ratio = Current Assets divided by Current liabilities

Year 3 = $141,700 / $70,900 = 2

Year 4 = $150,000 / $55,000 = 2.73

J. Quick (Acid test Ratio) = (Current Assets minus inventory )divided by Current liabilities

Year 3 = ($141,700 - $95,100) / $70,900 = 0.66

Year 4 = ($150,000 - $100,700) / $55,000 = 0.89

K. Accounts receivable turnover = Net credit sales divided by Average Account receivables

Year 3 = $181,200 / $31,900 = 5.68

Year 4 = $220,800 / $35,700 = 6.19

* I have assumed all sales are on credit because information on credit policy of the business isn't provided

L. Inventory Turnover = Cost of good sold divided by Average inventory on hand

Year 3 = $102,700 / $95,100 = 1.08

Year 4 = $125,400 / $100,700 = 1.25

M. Debt to Equity ratio = (short term debt + long tern debt + other fixed payments ) all divided by shareholders equity

Year 3 = $136,200 / $110,900 = 1.23

Year 4 = $119,300 / $157,000 = 0.76

N. Debt to Asset Ratio = Total Liability divided by Total Assets

Year 3 = $136,200 / $247,100 = 0.55

Year 4 = $119,300 / $276,300 = 0.43