Chapter 14, Problem 14.2DI

(a) Current ratio

To determine

Current Ratio: A part of liquidity ratios, current ratio reflects the ability to oblige the short term debts of a company. It is calculated based on the current assets and current liabilities; a company has in an accounting period. A current ratio is a useful tool for analysis of financials of a company.

Inventory Turnover: It is a part of efficiency ratios used during the process of ratio analysis. It reflects the number of times a company’s inventory is converted into sale during a particular period. The cost of goods sold is divided by average inventory to get the value of inventory turnover.

Profit Margin: Profit margin reflects the portion of net income in the net sales. It is a profitability measure tool that is used to evaluate the net income a business earns on every dollar of net sales. It is computed as net income divided by net revenue.

Return on Total Assets: It is a measure to evaluate the efficiency of company’s assets. It reports the profit earned as the percentage of total assets used in the business. A company’s rate of return on total assets reflects its ability to optimize the use of total assets.

The rate of Return on Common Stockholders’ Equity: It is a measure of net income available to common stockholders of the company. A company’s rate of return on equity shows the amount earned for each dollar invested by the common stockholders.

Debt to Assets Ratio: It is the ratio between total assets of the company and the total liabilities. Debt ratio reflects the finance strategy of the company. It is used to evaluate company’s ability to pay its debts. Higher debt ratio implies the higher financial risk.

Times Interest Earned Ratio: It’s a measure to evaluate the net income for interest payment on the debt of a company. It is a part of solvency ratios.

To compute: Current ratio for 2016 and 2017.

(b)

To determine

To compute: Inventory turnover

(c)

To determine

To compute: Profit margin

(d)

To determine

To compute: Return on assets

(e)

To determine

To compute: Return on common stockholder’s equity

(f)

To determine

To compute: Debt to assets ratio

(g)

To determine

To compute: Times interest earned