Chapter 17, Problem P17.34BPGB

To determine

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

Cash Ratio: It is useful to evaluate the cash available as cash is an important factor for day to day operations for any business. It comes under liquidity ratios and cash is divided by current liabilities compute this ratio.

Times-interest-earned Ratio: It reflects company’s earnings as the times of its interest expenses. It is used to evaluate the ability to pay interest expense, a company has. Higher ratio is preferred as it enables to pay the obligation of interest.

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.

Gross Profit Percentage: This ratio evaluates the profitability of each dollar of sale. Gross profit is first step toward the profitability so companies are very keen to have a higher gross profit percentage. It enables them to cover the operating expenses related to business.

Debt to Equity Ratio: This ratio reflects the relationship of company’s total liabilities to total equity. It is used to represent financial leverage in the business. Higher ratio means that the company has used debts more than the owner’s capital to acquire the assets.

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.

Earnings per Share of Common Stock: It is a mandatory term to be reported with the financials of a company in the annual report. It reflects the amount earned or lost on each outstanding common equity share. It is widely used to evaluate the performance of a business.

Price/Earnings Ratio: It depicts the relation of market price of a share to earnings per share of that company. The price/earnings ratio presents the market value of the amount invested to earn $1 by a company. It is major tool to be used by investors before the decisions related to investments in a company.

1.

a.

To Compute: The current ratio of G Company for 2017 and 2018.

To determine

b.

To Compute: The cash ratio of G Company for 2017 and 2018.

To determine

c.

To Compute: The times-interest-earned ratio of G Company for 2017 and 2018.

To determine

d.

To Compute: The inventory turnover of G Company for 2017 and 2018.

To determine

e.

To Compute: Gross profit percentage of G Company for 2017 and 2018.

To determine

f.

To Compute: The debt to equity ratio of company G for 2017 and 2018.

To determine

g.

To Compute: The rate of return on common stockholders’ equity of company G for 2017 and 2018.

To determine

h.

To Compute: The earnings per share of common stock of company G for 2017 and 2018.

To determine

i.

To Compute: The price/earnings ratio of company G for 2017 and 2018.

To determine

2.

a.

To Analyze: The change in company G’ ability to pay debts and to sell inventory during 2018.

To determine

b.

To Analyze: The change in investment attractiveness of company G’s common stock during 2018.