
Current ratio is the ratio which represents proportion of current assets and current liabilities. Company’s liquidity is considered by it.
Acid test ratio:
Acid test ratio is a ratio which represents capability of a company to pay off its current obligations out of its cash or quick assets
Capacity of a company to efficiently publishes credits and timely collection of funds from its vendors is shown by accounts receivable turnover. .
Inventory turnover:
Frequency of a company’s inventory sold or returned is shown by inventory turnover.
Day’s sales in inventory:
Day’s sales inventory shows the average number of days the company not sells its inventory.
Day’s sales uncollected:
Day’s sales uncollected shows number of days a company takes to collect its accounts receivables
Profit margin ratio:
Profit margin ratio shows proportion of net income in terms of sales. Earning capability is measured by this ratio.
Total assets turnover ratio:
Total assets turnover ratio represents portion of a company’s revenue in terms of its value of total assets.
Return on total assets ratio:
Company’s earnings made through its net assets is known as return on total assets ratio.
Return on common
Return on common stockholder’s equity displays returns received on stockholder’s equity for a certain period of time.
Price earnings ratio:
Price earnings ratio shows the proportion of market value per share and earnings per share of the company.
Dividend yield:
Dividend yield is the portion of a current share price of the company which is earned or to be distributed.
1.
To compute: (a) current ratio, (b) acid test ratio ,(c) accounts receivable turnover ( d) inventory turnover (e) day’s sales in inventory (f) day’s sales uncollected of B Company and K Company.

Explanation of Solution
(a)
Formula to calculate current ratio is,
Current ratio of B Company:
Given info,
Current assets are $155,440
Current liabilities are $61,340
Substitute $155,440 for current assets and $61,340 for current liabilities.
Thus current ratio is 2.53 .
Working notes:
Likewise, current ratio of K Company:
Thus, current ratio is 2.55.
(b)
Formula to calculate acid test ratio is,
Acid test ratio of B Company:
Given info,
Cash is $19,500.
Accounts receivables are $37,400
Current liabilities are $61,340.
Substitute $19,500 for cash, $37,400 for accounts receivable and $61,340 for current liabilities.
Thus, acid test ratio is 0.93
Likewise, acid test ratio of K Company:
Thus, acid test ratio is 0.98.
(c)
Formula to calculate accounts receivable turnover is,
Accounts receivable turnover of B Company:
Given info,
Net sales are $770,000.
Accounts receivable is 37,400.
Substitute $770,000 for net sales and $37,400 for accounts receivable.
Thus, accounts receivable turnover is 20.59.
Likewise, accounts receivable turnover of K Company:
Thus, accounts receivable turnover is 15.33.
(d)
Formula to calculate inventory turnover is,
Inventory turnover of B Company
Given info,
Cost of goods sold is $585,100.
Inventory is $84,440
Substitute $585,100 for cost of goods sold and $84,440.
Thus, inventory turnover is 6.93.
Likewise, inventory turnover of K Company:
Thus, inventory turnover is 4.77
(e)
Formula to calculate day’s sales in inventory is,
Day’s sales in inventory of B Company
Given info,
Inventory at the end of the year is $84,440
Cost of goods sold is $585,100
Substitute $585,100 for cost of goods sold and $84,440 for inventory at the end of the year.
Thus, day’s sales inventory is 36 day
Likewise, day’s sales in inventory of K Company:
Thus, inventory turnover is 76.46 days
(f)
Formula to calculate day’s sales uncollected is,
Day’s sales uncollected of B Company
Given info,
Accounts receivable is $37,400.
Net sales are $770,000.
Substitute $37,400 for accounts receivable and $770,000 for net sales.
Thus, day’s sales uncollected are 17.73 days .
Likewise, day’s sales uncollected of K Company:
Thus, day’s sales uncollected is 23.80 days
2.
To compute: (a) profit margin ratio (b) total assets turnover ratio ,(c) return on total assets ratio (d) return on common stockholder’s equity (e) price earnings ratio (f) dividend yields of B Company and K Company.
2.

Explanation of Solution
(a)
Formula to calculate Profit margin ratio is,
Profit margin ratio of B Company
Given info,
Net income is $162,200.
Net sales are $770,000.
Substitute $162,200for net income and $770,000for net sales.
Thus, profit margin ratio is 21.06%.
Likewise, profit margin ratio of K Company:
Thus, profit margin ratio is 24%.
(b)
Formula to calculate total assets turnover ratio is,
Total assets turnover ratio of B Company
Given info,
Net sales are $770,000.
Assets in the beginning of the year are $398,000.
Assets at the end of the year are $445,440.
Substitute $770,000for net sales and $398,000for assets in the beginning of the year and $445,440 at the end of the year.
Thus, total assets turnover ratio is 1.83.
Likewise, total assets turnover ratio of K Company:
Thus, total assets turnover ratio is 1.90
(c)
Formula to calculate return on total assets ratio is,
Return on total assets ratio of B Company
Given info,
Net income is $162,200.
Assets in the beginning of the year are $398,000.
Assets at the end of the year are $445,440.
Substitute $162,200 for net income and $398,000for assets in the beginning of the year and $445,440at the end of the year.
Thus, return on total assets ratio is 0.38
Likewise, return on total assets ratio of K Company:
Thus, return on total assets ratio is 0.45
(d)
Formula to calculate return on common stockholder’s equity is,
Return on common stockholder’s equity of B Company
Given info,
Net income is $162,200.
Common stock in the beginning of the year is $180,000.
Common stock at the end of the year is $180,000.
Substitute $162,200 for net income and $180,000 for common stock in the beginning of the year and $180,000 at the end of the year.
Thus, return on common stockholder’s equity is 90.11%.
Likewise, return on common stockholder’s equity of K Company:
Thus, return on common stockholder’s equity is 102.14%.
(e)
Formula to calculate price earnings ratio is,
Price earnings ratio of B Company
Given info,
Market value per share is $75.
Earning per share is $4.51.
Substitute $75 for market value per share and $4.51 for earnings per share.
Thus, price earning ratio is 16.63.
Likewise, price earning ratio of K Company:
Thus, price earning ratio is 14.68.
(f) Formula to calculate dividend yield is,
Dividend yield of B Company
Given info,
Cash dividend per share is $3.81.
Market price per share is $75.
Substitute $75 for market price per share and $3.81 for annual cash dividend per share.
Thus, dividend yield is 0.051.
Likewise, dividend yield of K Company:
Thus, dividend yield is 0.052.
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