Question

Balance Sheet

Assets:
Cash and marketable $600,000
securities
Accounts receivable 900,000
Inventories 1,500,000
Prepaid expenses 75,000
Total current assets $3,075,000
Fixed assets 8,000,000
Less: accum. depr. (2,075,000)
Net fixed assets $5,925,000
Total assets $9,000,000
Liabilities:
Accounts payable $800,000
Notes payable 700,000
Accrued taxes 50,000
Total current liabilities $1,550,000
Long-term debt 2,500,000
Owner's equity (1 million 4,950,000
shares of common stock outstanding)
Total liabilities and $9,000,000
owner's equity
Net sales (all credit) $10,000,000
Less: Cost of goods sold (3,000,000)
Selling and (2,000,000)
administrative expense
Depreciation expense (250,000)
Interest expense (200,000)
Earnings before taxes 4,550,000
Income taxes (1,820,000)
Net income $2,730,000
a. Calculate the current ratio
b. Calculate the average collection period.
c. Calculate the debt ratio.
d. Calculate the total asset turnover ratio.
e. Calculate the operating profit margin
f. Calculate the inventory turnover ratio

Answer 1

a. current ratio = 1.98

b. average collection period = 32.85 days

c. debt ratio = 35,56%

d. total asset turnover ratio = 1.11 times

e. operating profit margin = 47,50%

f. inventory turnover ratio = 2 times

Step-by-step explanation:

a. current ratio

Current ratio = Current Assets / Current Liabilities

= 3,075,000 / 1,550,000

= 1.98

b. average collection period.

Average collection period = Accounts Receivable / (Sales / 365)

= 900,000 / (10,000,000 / 365)

= 32.85 days

c. debt ratio.

Debt ratio = Interest bearing debt / Total Assets × 100

= (700,000+2,500,000)/ 9,000,000 × 100

= 35,56%

d. total asset turnover ratio.

Total asset turnover ratio = Sales / Total Assets

= 10,000,000 / 9,000,000

= 1.11 times

e. operating profit margin

Operating profit margin = Operating Profit / Sales × 100

= (4,550,000+200,000) / 10,000,000 × 100

= 47,50%

f. inventory turnover ratio

Inventory turnover ratio = Cost of Sales / Inventory

= 3,000,000 / 1,500,000

= 2 times