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. Return on equity k. Fixed asset turnover a. The current ratio is X. (Round to two decimal places.)

Answer 1

Ans. A	Current ratio   =   Total current assets / Total current liabilities
		$197,000 / $152,000
		1.296   or   1.30 : 1
Ans. B	Acid test ratio   =   (Total current assets - Inventory - Prepaid expenses) / Total current liabilities
	($197,000 - $50,000 - $17,000) / $152,000
	$130,000 / $152,000
	0.86 : 1
Ans. C	Time interest earned = Operating profits / Interest expenses
		$75,000 / $8,000
		9.38 times
Ans. D	Inventory turnover = Cost of goods sold / Inventory
		$84,000 / $50,000
		1.68 times
Ans. E	Assets turnover = Sales / Total assets
		$212,000 / $527,000
		0.40 times
Ans. F	Operating Profit Margin =   Operating Profit / Sales * 100
		$75,000 / $212,000 * 100
		35.38%