Concept Introduction:
Current ratio helps in measuring short-term liquidity of a firm. Current ratio is computed on the basis of current assets and current liabilities.
Acid-test ratio:
Acid-test ratio shows the relationship between quick assets and current liabilities. This ratio helps in measuring ability of the company to meet its short-term liabilities with liquid assets.
Gross margin ratio:
Gross margin ratio shows relationship between sales revenue and gross profit. This ratio helps in knowing that how much gross profit margin a business is generating from given amount of sales revenue.
Return on total assets:
Return on total assets is known as profitability measurement which is calculated on the basis of net income and average total assets. This ratio helps in knowing the
Requirement 1:
Current ratio.
Answer to Problem 4BPSB
Current ratio = 2.5 : 1
Explanation of Solution
Concept Introduction:
Current ratio:
Current ratio helps in measuring short-term liquidity of a firm. Current ratio is computed on the basis of current assets and current liabilities.
Acid-test ratio:
Acid-test ratio shows the relationship between quick assets and current liabilities. This ratio helps in measuring ability of the company to meet its short-term liabilities with liquid assets.
Gross margin ratio:
Gross margin ratio shows relationship between sales revenue and gross profit. This ratio helps in knowing that how much gross profit margin a business is generating from given amount of sales revenue.
Return on total assets:
Return on total assets is known as profitability measurement which is calculated on the basis of net income and average total assets. This ratio helps in knowing the rate of return on average total assets.
Requirement 2:
Acid-test ratio.
Answer to Problem 4BPSB
Acid-test ratio = 1.6 : 1
Explanation of Solution
Concept Introduction:
Current ratio:
Current ratio helps in measuring short-term liquidity of a firm. Current ratio is computed on the basis of current assets and current liabilities.
Acid-test ratio:
Acid-test ratio shows the relationship between quick assets and current liabilities. This ratio helps in measuring ability of the company to meet its short-term liabilities with liquid assets.
Gross margin ratio:
Gross margin ratio shows relationship between sales revenue and gross profit. This ratio helps in knowing that how much gross profit margin a business is generating from given amount of sales revenue.
Return on total assets:
Return on total assets is known as profitability measurement which is calculated on the basis of net income and average total assets. This ratio helps in knowing the rate of return on average total assets.
Requirement 3:
Days' sales uncollected.
Answer to Problem 4BPSB
Days' sales uncollected = 17.5 days
Explanation of Solution
Concept Introduction:
Current ratio:
Current ratio helps in measuring short-term liquidity of a firm. Current ratio is computed on the basis of current assets and current liabilities.
Acid-test ratio:
Acid-test ratio shows the relationship between quick assets and current liabilities. This ratio helps in measuring ability of the company to meet its short-term liabilities with liquid assets.
Gross margin ratio:
Gross margin ratio shows relationship between sales revenue and gross profit. This ratio helps in knowing that how much gross profit margin a business is generating from given amount of sales revenue.
Return on total assets:
Return on total assets is known as profitability measurement which is calculated on the basis of net income and average total assets. This ratio helps in knowing the rate of return on average total assets.
Requirement 4:
Inventory turnover.
Answer to Problem 4BPSB
Inventory turnover = 15.3 times
Explanation of Solution
Concept Introduction:
Current ratio:
Current ratio helps in measuring short-term liquidity of a firm. Current ratio is computed on the basis of current assets and current liabilities.
Acid-test ratio:
Acid-test ratio shows the relationship between quick assets and current liabilities. This ratio helps in measuring ability of the company to meet its short-term liabilities with liquid assets.
Gross margin ratio:
Gross margin ratio shows relationship between sales revenue and gross profit. This ratio helps in knowing that how much gross profit margin a business is generating from given amount of sales revenue.
Return on total assets:
Return on total assets is known as profitability measurement which is calculated on the basis of net income and average total assets. This ratio helps in knowing the rate of return on average total assets.
Requirement 5
Days' sales in inventory.
Answer to Problem 4BPSB
Days' sales in inventory = 20.9 days
Explanation of Solution
Concept Introduction:
Current ratio:
Current ratio helps in measuring short-term liquidity of a firm. Current ratio is computed on the basis of current assets and current liabilities.
Acid-test ratio:
Acid-test ratio shows the relationship between quick assets and current liabilities. This ratio helps in measuring ability of the company to meet its short-term liabilities with liquid assets.
Gross margin ratio:
Gross margin ratio shows relationship between sales revenue and gross profit. This ratio helps in knowing that how much gross profit margin a business is generating from given amount of sales revenue.
Return on total assets:
Return on total assets is known as profitability measurement which is calculated on the basis of net income and average total assets. This ratio helps in knowing the rate of return on average total assets.
Requirement 6
Debt-to-equity ratio.
Answer to Problem 4BPSB
Debt-to-equity ratio = 0.68
Explanation of Solution
Concept Introduction:
Current ratio:
Current ratio helps in measuring short-term liquidity of a firm. Current ratio is computed on the basis of current assets and current liabilities.
Acid-test ratio:
Acid-test ratio shows the relationship between quick assets and current liabilities. This ratio helps in measuring ability of the company to meet its short-term liabilities with liquid assets.
Gross margin ratio:
Gross margin ratio shows relationship between sales revenue and gross profit. This ratio helps in knowing that how much gross profit margin a business is generating from given amount of sales revenue.
Return on total assets:
Return on total assets is known as profitability measurement which is calculated on the basis of net income and average total assets. This ratio helps in knowing the rate of return on average total assets.
Requirement 7
Times interest earned.
Answer to Problem 4BPSB
Times interest earned = 13.7 times
Explanation of Solution
Concept Introduction:
Current ratio:
Current ratio helps in measuring short-term liquidity of a firm. Current ratio is computed on the basis of current assets and current liabilities.
Acid-test ratio:
Acid-test ratio shows the relationship between quick assets and current liabilities. This ratio helps in measuring ability of the company to meet its short-term liabilities with liquid assets.
Gross margin ratio:
Gross margin ratio shows relationship between sales revenue and gross profit. This ratio helps in knowing that how much gross profit margin a business is generating from given amount of sales revenue.
Return on total assets:
Return on total assets is known as profitability measurement which is calculated on the basis of net income and average total assets. This ratio helps in knowing the rate of return on average total assets.
Requirement 8
Profit margin ratio.
Answer to Problem 4BPSB
Profit margin ratio = 7.5%
Explanation of Solution
Concept Introduction:
Current ratio:
Current ratio helps in measuring short-term liquidity of a firm. Current ratio is computed on the basis of current assets and current liabilities.
Acid-test ratio:
Acid-test ratio shows the relationship between quick assets and current liabilities. This ratio helps in measuring ability of the company to meet its short-term liabilities with liquid assets.
Gross margin ratio:
Gross margin ratio shows relationship between sales revenue and gross profit. This ratio helps in knowing that how much gross profit margin a business is generating from given amount of sales revenue.
Return on total assets:
Return on total assets is known as profitability measurement which is calculated on the basis of net income and average total assets. This ratio helps in knowing the rate of return on average total assets.
Requirement 9
Total assets turnover.
Answer to Problem 4BPSB
Total assets turnover = 4.0 times
Explanation of Solution
Concept Introduction:
Current ratio:
Current ratio helps in measuring short-term liquidity of a firm. Current ratio is computed on the basis of current assets and current liabilities.
Acid-test ratio:
Acid-test ratio shows the relationship between quick assets and current liabilities. This ratio helps in measuring ability of the company to meet its short-term liabilities with liquid assets.
Gross margin ratio:
Gross margin ratio shows relationship between sales revenue and gross profit. This ratio helps in knowing that how much gross profit margin a business is generating from given amount of sales revenue.
Return on total assets:
Return on total assets is known as profitability measurement which is calculated on the basis of net income and average total assets. This ratio helps in knowing the rate of return on average total assets.
Requirement 10
Return on total assets.
Answer to Problem 4BPSB
Return on total assets = 22.4%
Explanation of Solution
Concept Introduction:
Current ratio:
Current ratio helps in measuring short-term liquidity of a firm. Current ratio is computed on the basis of current assets and current liabilities.
Acid-test ratio:
Acid-test ratio shows the relationship between quick assets and current liabilities. This ratio helps in measuring ability of the company to meet its short-term liabilities with liquid assets.
Gross margin ratio:
Gross margin ratio shows relationship between sales revenue and gross profit. This ratio helps in knowing that how much gross profit margin a business is generating from given amount of sales revenue.
Return on total assets:
Return on total assets is known as profitability measurement which is calculated on the basis of net income and average total assets. This ratio helps in knowing the rate of return on average total assets.
Requirement 11
Return on common
Answer to Problem 4BPSB
Return on common stockholders' equity = 38.3%
Explanation of Solution
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Chapter 17 Solutions
FUNDAMENTAL ACCT PRIN CONNECT ACCESS
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