Homework Answers
a. Current ratio = Current assets / Current liabilities
Current assets = Cash + marketable securities + accounts receivable + inventory
Current assets = $15150 + $8260 + $13400 + $11500 = $48310
Current liabilities = Accounts payable + current notes payable + mortgage payable
Current liabilities = $8720 + $3400 + $4200 = $16320
Now, putting these values in the current ratio formula, we get,
Current assets = $48310, Current liabilities = $16320
Current ratio = $48310 / $16320 = 2.96
b. Earnings per share (EPS) = Net income / Average number of common shares outstanding
Putting the values in the above formula, we get,
Earnings per share (EPS) = $14800 / 850 = 17.41 per share
c. Quick (acid test) ratio = Current assets – Inventories / Current liabilities
Current assets = $48310 (as calculated in point (a) above), Current liabilities = $16320 (as calculated in point (a) above), Inventories = $11500
Putting the values in the above formula, we get,
Quick ratio = ($48310 - $11500) / $16320
Quick ratio = $36810 / $16320 = 2.26
d. Return on investment ratio = Net income / Assets * 100
Net income = $14800, Assets = $207810
Putting the values in the above formula, we get,
Return on investment = $14800 / $207810 * 100
Return on investment = 7.12%
e. Return on equity (ROE) = Net income / Stockholder's equity * 100
Net income = $14800
Stockholder's equity = Common stock + Retained earnings
Stockholder's equity = $114300 + $56010 = $170310
Now, putting these values in the above ROE formula, we get,
Return on equity (ROE) = $14800 / $56010 * 100 = 26.42%
f. Debt to equity ratio = Total liabilities / Shareholder's equity * 100
Total liabilities = Accounts payable + current notes payable + Mortgage payable + Bonds payable
Total liabilities = $8720 + $3400 + $4200 + $21180 = $37500
Shareholder's equity = $56010 (as calculated in point (g) above)
Debt to equity ratio = $37500 / $56010 * 100 = 66.95%
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