
Current ratio is the ratio which is used to measure a company’s liquidity and it considers current assets and current liabilities.
Acid test ratio:
Acid test ratio is a ratio which is measures the ability of a company to pay off its current obligations out of near cash or quick assets.
Ability of a company to efficiently issue credits to its customers or vendors and timely collection of funds from them 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 selling its inventory or holding it before selling.
Day’s sales uncollected:
Day’s sales uncollected imply how much days a company takes to collect its accounts receivables.
Profit margin ratio:
Profit margin ratio shows net income as a percent of sales. This ratio reflects a company’s ability of earning.
Total assets turnover ratio:
Total assets turnover ratio is the measurement of a company’s revenue or sales to its value of total assets.
Return on total assets ratio:
Measurement of a company’s earnings against 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 F Company and B Company.

Explanation of Solution
(a)
Formula to calculate current ratio is,
F Company
Given info,
Current assets are $205,200.
Current liabilities are $90,500.
Substitute $205,200 for current assets and $90,500 for current liabilities.
Thus, current ratio is 2.27 .
Working notes:
Calculation of current assets,
B Company
Thus, current ratio is 2.15.
(b)
Formula to calculate acid test ratio is,
F Company:
Given,
Cash is $20,000.
Accounts receivables are $77,100
Current liabilities are $90,500.
Substitute $20,000 for cash, $77,100 for accounts receivable and $90,500 for current liabilities.
Thus, acid test ratio is 1.07
B Company:
Thus, acid test ratio is 1.10.
(c)
Formula to calculate accounts receivable turnover is,
F Company
Given,
Net sales are $393,600.
Accounts receivable in the beginning of the year is $72,200.
Accounts receivable at the end of the year is $77,100.
Substitute $393,600 for net sales and $72,200 for accounts receivable in the beginning of the year and $77,100 at the end of the year.
Thus, accounts receivable turnover is 5.27.
B Company:
Thus, accounts receivable turnover is 9.28.
(d)
Formula to calculate inventory turnover is,
F Company
Given,
Cost of goods sold is $290,600.
Inventory in the beginning of the year is $105,100.
Inventory at the end of the year is $86,800.
Substitute $290,600 for cost of goods sold and $105,100 for inventory in the beginning of the year and $86,800 at the end of the year.
Thus, inventory turnover is 3.03.
B Company:
Thus, inventory turnover is 5.91.
(e)
Formula to calculate day’s sales in inventory is,
F Company
Given,
Inventory at the end of the year is $86,800.
Cost of goods sold is $290,600.
Substitute $290,600 for cost of goods sold and $86,800 for inventory at the end of the year.
Thus, day’s sales inventory is 109.02 day
B Company:
Thus, inventory turnover is 62.35 days
(f)
Formula to calculate day’s sales uncollected is,
F Company
Given,
Accounts receivable is $77,100.
Net sales are $393,600.
Substitute $77,100 for accounts receivable and $393,600 for net sales.
Thus, day’s sales uncollected are 77.5 days .
B Company:
Thus, day’s sales uncollected is 38.55 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,
F Company
Given,
Net income is $33,850.
Net sales are $393,600.
Substitute $33,850 for net income and $393,600 for net sales.
Thus, profit margin ratio is 8.6%.
B Company:
Thus, profit margin ratio is 9.24%.
(b)
Formula to calculate total assets turnover ratio is,
F Company
Given,
Net sales are $393,600.
Assets in the beginning of the year are $383,400.
Assets at the end of the year are $382,100.
Substitute $393,600 for net sales and $383,400 for assets in the beginning of the year and $382,100 at the end of the year.
Thus, total assets turnover ratio is 1.03.
B Company:
Thus, total assets turnover ratio is 1.48.
(c)
Formula to calculate return on total assets ratio is,
F Company
Given,
Net income is $33,850.
Assets in the beginning of the year are $383,400.
Assets at the end of the year are $382,100.
Substitute $33,850 for net income and $383,400 for assets in the beginning of the year and $382,100 at the end of the year.
Thus, return on total assets ratio is 0.09
B Company:
Thus, return on total assets ratio is 0.14
(d)
Formula to calculate return on common stockholder’s equity is,
F Company
Given,
Net income is $33,850.
Common stock in the beginning of the year is $133,000.
Common stock at the end of the year is $133,000.
Substitute $33,850 for net income and $133,000 for common stock in the beginning of the year and $133,000 at the end of the year.
Thus, return on common stockholder’s equity is 25.45%.
B Company:
Thus, return on common stockholder’s equity is 43.76%.
(e)
Formula to calculate price earnings ratio is,
F Company
Given,
Market value per share is $25.
Earnings per share are $1.27.
Substitute $25 for market value per share and $1.27 for earnings per share.
Thus, price earning ratio is $19.69.
B Company:
Thus, price earning ratio is $11.42.
(f)
Formula to calculate dividend yield is,
F Company
Given,
Cash dividend per share is $1.50.
Market price per share is $25.
Substitute $25 for market price per share and $1.50 for annual cash dividend per share.
Thus, dividend yield is $0.06.
B Company:
Thus, dividend yield is $0.06.
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Chapter 13 Solutions
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