   Chapter 15, Problem 9SPA

Chapter
Section
Textbook Problem

FINANCIAL RATIOS Use the spreadsheet and financial statements prepared in Problem 15-8A. All sales are credit sales. The Accounts Receivable balance on January 1, 20--, was $10,200.REQUIREDPrepare the following financial ratios: (a) Current ratio (b) Quick ratio (c) Working capital (d) Return on owner’s equity (e) Accounts receivable turnover and average number of days required to collect receivables (f) Inventory turnover and average number of days required to sell inventory To determine Prepare the following financial ratios. 1. (a) Current ratio 2. (b) Quick ratio 3. (c) Working capital 4. (d) Return on owner’s equity 5. (e) Accounts receivable turnover and average number of days require collecting receivables. 6. (f) Inventory turnover and average number of days required to sell inventory Explanation Ratio analysis: The analysis of a company using the financial ratios and comparing its trends and measure its performance within the company and the companies of the industry is known as ratio analysis. The main categories of ratio analyses are liquidity ratios, profitability ratios, activity ratios, and leverage ratios. (a) Compute current ratio. Current ratio =Current assetsCurrent liabilities=$103,000$17,800=5.79to 1 (b) Compute quick ratio. Quick ratio =Quick assetsCurrent liabilites=($23,440+9,360)$17,800=1.84to 1 (c) Compute working capital. Working capital =Current assets Current liabilites=$103,000$17,800=$85,200

(d)

Compute return on owners’ equity.

Return on owners' equity=Net incomeAverage owners' equity=$78,080($504,320+$607,600)2=$78,080\$555,960=14

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