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Acid-Test Ratio: It is a ratio used to determine a company’s ability to pay back its current liabilities using only liquid assets that are current assets except the inventory and prepaid expenses.
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.
Profit Margin: Profit margin reflects the portion of net income in the net sales. It is a profitability measure tool that is used to evaluate the net income a business earns on every dollar of net sales. It is computed as net income divided by net revenue.
Assets Turnover: It’s a measure to evaluate the efficiency of total assets used in the business to generate sales during a certain period. Assets turnover reflects the net sales as the times of average total assets.
Return on Total Assets: It is a measure to evaluate the efficiency of company’s assets. It reports the profit earned as the percentage of total assets used in the business. A company’s
Rate of Return on Common
Debt to Assets Ratio: It is the ratio between total assets of the company and the total liabilities. Debt ratio reflects the finance strategy of the company. It is used to evaluate company’s ability to pay its debts. Higher debt ratio implies the higher financial risk.
To compute: (a) Current ratio (b) Acid-test ratio (c) Accounts receivable turnover (d) Inventory turnover (e) Profit margin (f) Asset turnover (g) Return on assets (h) Return on common stockholders’ equity (i) Debt to assets ratio of W Company for 2017.
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Chapter 18 Solutions
Accounting Principles volume 2
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