Chapter 2, Problem 17PROB

Summary Introduction

HHD's current assets are $26000, net income is $140,000, long-term debt is $1,755,000, and 35% of the firm's assets are financed with common equity. The firm's return on assets is 4%.

Calculate the current ratio as follows:

Current ratio is one of the liquidity ratios which is used to measure the short-term ability of the firm to pay the firm's short-term obligations with its current assets.

$\text{Current ratio}=\frac{\text{Current assets}}{\text{Current liabilities}}$

Return on assets is used to measure how profitable the firm is related to the firm's total assets.

$\text{Return on assets}=\frac{\text{Net income}}{\text{Total assets}}$