Question

Below is a simplified balance sheet for Summerside Inc. (Summerside): Summerside Inc. Balance Sheet As at December 31, 2017 Liabilities and shareholders' equity Assets $2,250,000 $1,750,000 Current assets Current liabilities Non-current assets 6,250,000 Non-current liabilities 2,500,000 Shareholders' equity 4,250,000 $8,500,000 $8,500,000 Total assets Total liabilities and shareholders' equity Calculate the following on December 31, 2017 using Summerside's balance sheet and a net income of $450,000 1 working capital 2. Return on Assets Return on Equity 3. ((hint: if you are not given enough information to calculate an average use the account balance)

Answer 1

1.

Working capital = Current assets - Current liabilities

= 2,250,000 - 1,750,000

= $500,000

2.

Return on assets = Net income/Total assets

= 450,000/8,500,000

= 5.29% (rounded to two decimals)

3.

Return on equity = Net income/Shareholders' Equity

= 450,000/4,250,000

= 10.59% (rounded to two decimals)

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