Question

Complete Ratio Analysis Not sure of the difference in Return on owners' investment and Return on total investment?

Rosey's Roses
Ratio Analysis
December 2023
Profitability
Return on owners' investment
Return on total investment
Profit margin
Gross margin
Liquidity
Current ratio
Quick ratio
Receivable turnover
Inventory turnover
Solvency
Debt-to-equity
Liability

	12/31/2023
Sales		$ 225,000
Less: Cost of Goods Sold		100,000
Gross Margin		125,000
Expenses:
Advertising	$    17,000
Communications	6,500
Depreciation	5,000
Payroll	54,700
Rent	13,000
Supplies	800
Utilities	4,000	101,000
Net income		$    24,000

Assets
Current Assets:
Cash	15,000.00		10.71%
Accounts Receivable	18,373.97		13.12%
Inventory	38,626.03		27.59%
Supplies	500.00	72,500.00	0.36%
Buildings	75,000.00		53.57%
Equipment	7,500.00		5.36%
Less: Accumulated Depreciation	15,000.00	67,500.00	10.71%
Total		140,000.00
Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payable	25,000.00		17.86%
Payroll Liabilities	5,000.00	30,000.00	3.57%
Long-Term Debt		63,000.00	45.00%
Owner's Equity		47,000.00	33.57%
Total		140,000.00	100.00%

Answer 1

Rosey's Roses
Ratio Analysis
December 2023
Profitability
Return on owners' investment	51.06	%
Return on total investment	17.14	%
Profit margin	10.67	%
Gross margin	55.56	%
Liquidity
Current ratio	2.42	to 1
Quick ratio	1.11	to 1
Receivable turnover	12.25	times
Inventory turnover	2.59	times
Solvency
Debt-to-equity	1.98	to 1

Note: All ratios have been rounded off to 2 decimal places in absence of instructions regarding the same. Kindly round off as required.

Working:

Return on owners' investment = Net income/Owners' equity = $24000/$47000 = 51.06%

Return on total investment = Net income/Total assets = $24000/$140000 = 17.14%

Profit margin = Net income/Sales = $24000/$225000 = 10.67%

Gross margin = Gross margin/Sales = $125000/$225000 = 55.56%

Current ratio = Current assets/Current liabilities = $72500/$30000 = 2.42

Quick ratio = Quick assets/Current liabilities = $33373.97/$30000 = 1.11

Quick assets = Cash + Accounts receivable = $15000 + $18373.97 = $33373.97

Receivables turnover = Sales/Accounts receivable = $225000/$18373.97 = 12.25 times

Inventory turnover = Cost of goods sold/Inventory = $100000/$38626.03 = 2.59 times

Debt to equity = Total debt/Equity = ($30000 + $63000)/$47000 = $93000/$47000 = 1.98