Question

Compute the following: .(1) current ratio, (2) acid-test ratio, (3) days' sales uncollected, (4) inventory turnover, (5) days' sales in inventory, (6) debt-to-equity ratio, (7) times interest earned, (8) profit margin ratio, (9) total asset turnover, (10) return on total assets, and (11) return on common stockholders' equity.

Answer 1

Current ratio: relationship between short-term assets and short-term liabilities

`(current \: assets)/(current \: liaiblities)`

acid-test ratio it removes the inventory from the above calculation to check the presure to sale from the firm

`(current \: assets - inventory)/(current \: liaiblities)`

(3)

`(365)/(AR \: TO) = $Sales period`

We first, solve for the accounts receivables turnover which is the times we collect the receivables and then, we divide over the days in a year to know the days outstanding

(4)

`(COGS)/(Average Inventory) = $Inventory Turnover`

To calculate the times the inventory was sold during the period

(5)

`(365)/(Inventory \: TO) = $Sales period`

We first, solve for the inventory turnover which is the times we sale the goods and then, we divide over the days in a year to know the days it takes to leave the inventory

(6)
`(Liabilities)/(Equity) = $Debt-to-equity`

Relationship between own fund and borrowing

above one it means the company is leverage for third parties more than own fund

(7)

`(EBIT)/(Interest \: expense) = TIE`

we make this division of the earning before interest and taxes against our interest expense.

This compares the operating income against the interest expense we got for borrowing below zero is a serious problem as the company falls to meet the interest of his debt

(8)

`(Net \: Income)/(Sales) = Profit \: Margin`

(9)

`(Sales)/(Assets) = Assets \: TO`

How the assets were managed to create sales for the firm

(10)

`(EBIT)/(Assets) = Assets \: Return`

This will let us know how well we manage our assets as it link the income with the asset used to generated

(11)

`(Net \: Income)/(Equity) = Equity \: Return`

This will let us know how much we generate from the investment made.

Step-by-step explanation: