Question

ACME, Inc.

Income Statement

Month Ended July 31, 2018

Revenues:

   Sales                                                                                    99,000

Expenses:

   Wages Expense                                           25,000

   Rent Expense                                               12,000

   Gasoline Expense                                          2,400

   Utilities Expense                                             6,000

   Supplies Expense                                              400

   Depreciation Expense-Del Van                      3,000

   Depreciation Expense-Equip                       10,000

Total Expenses                                                                       58,800

Net Income                                                                             40,200

                                                            

ACME, Inc.

Statement of Retained Earnings

Month Ended July 31, 2018

Retained Earnings, July 1, 2012                                                         39,100

Plus:    Net Income for July                                         40,200            

Less:   Dividends                                                           6,000

Increase in Retained Earnings                                                            34,200                                                

Retained Earnings, July 31, 2012                                                       73,300                        

ACME, Inc.

Balance Sheet

July 31, 2018

                        Assets                                                                               Liabilities

Current Assets:                                                                                Current Liabilities:

  Cash                                                                          42,000           Accounts Payable                      4,000

  Accounts Receivable                                                   8,000           Sales Tax Payable                     4,500

  Inventory                                                                         800             Total Current Liabilities            8,500

    Total Current Assets                                               50,800         Long-Term Liabilities:

Property, Plant & Equipment:                                                          Long Term Loans Payable         11,000

  Delivery Van                                               15,000                            Total Liabilities                       19,500

  Accumulated Depreciation – Del Van          3,000    12,000

  Equipment                                                  50,000                           Stockholders’ Equity

  Accumulated Depreciation – Equip           20,000    30,000         Retained Earnings                      73,300

    Total Assets                                                            92,800             Total Liabilities and                92,800

                                                                                                              Stockholders’ Equity

Using the information from the Financial Statements you have just completed and assuming that Cost of Goods Sold amounted to 40% of your sales and that all your sales are on credit, answer the following:

1. Profit Margin Ratio

2. Return on Equity Ratio

3. Return on Assets Ratio

4. Total Assets Turnover Ratio

5. Current Ratio

6. Debt to Total Assets Ratio

7. Quick (Acid Test) Ratio

8. Receivable Turnover Ratio

1. Fixed Assets Turnover Ratio

10. Inventory Turnover Ratio

11. Debt to Equity Ratio

Answer 1

Profit Margin Ratio: Profit Margin is used to measure the profitability of the organisation. THe formula is as follows.

Profit Margin Ratio = (Net SAles - Cost of Goods Sold) / Net sales

GIven Cost of Goods sold is 40% of sales

Cost of Goods sold = Net sales * 40% = $99,000 * 40% = $39,600

Profit Margin Ratio = ($99,000 - $39,600) / $99,000 = 0.6 = 60%

Return on Equity Ratio: It is the ratio measures teh ability of the firm to generate profits from its sharehlders investments.

Return on Equity Ratio = Net Income / Shareholder's Equity

= $40,200 / $73,300

Return on Equity Ratio = 0.54

Return on Assets Ratio: It measures the ability of the company to generate profits from its assets

Return on Assets Ratio = Net Income / Average Total Assets

= $40,200 / $92,800

Return on Assets Ratio = 0.43

Total Assets Turnover Ratio: It measures the ability of the company to generate revenue using its assets.

Total Assets Turnover Ratio = Net Sales / Average Total Assets

= $99,000 / $92,800

Total Assets Turnover Ratio = 1.06

Current Ratio: It is the ratio of current assets to Current Liabilities

Current Ratio = Current Assets/ Current Liabilities

= $50,800 / $8,500

Current Ratio = 5.97

Debt to Total Assets Ratio: It is the leverage ratio defines the total amount of debt relative to its total assets.

Debt to Total Assets Ratio = Total Debt / Total Assets

= $19,500 / $92,800

Debt to Total Assets Ratio = 0.21

Quick (Acid Test) Ratio: It is the indicator of short term liquidity positon used to know the ability of the company to amke short term obligations with its liquid assets.

Quick Ratio = (Current Assets - Inventory) / Current Liabilities

= ($50,800 - $800) / $8,500

Quick Ratio = 5.88

Receivable Turnover Ratio: It is used to know the ability of teh comapny to collect the dues from its customers.

Receivable Turnover Ratio = Net Credit Sales / Average Accounts Receivable

= $99,000 / $8,000

Receivable Turnover Ratio = 12.37

Fixed Assets Turnover Ratio: It measures how well company uses its fxed assets to generate sales.

Fixed Assets Turnover Ratio = Net sales / Average Fixed Assets

= $99,000 / ($92,800 - $50,800)

Fixed Assets Turnover Ratio = 2.35

Inventory Turnover Ratio: It is the ratio to know how many times the company has sld its inventory and replaced during a period.

Inventory Turnover Ratio = Net sales / Average Inventory

= $99,000 / $800

Inventory Turnover Ratio = 123.75

Debt to Equity Ratio: It is the propportion of debt and equity used by the company to finance its assets

Debt to Equity Ratio = Total Liabilities / Total Shareholders Equity

= $19,500 / $73,300

Debt to Equity Ratio = 0.26