Chapter 2, Problem 19PROB

Summary Introduction

EWD's 60% of assets are financed with common equity. Its current ratio is 5, total assets turnover is 4, current assets equal to $150,000, and sales are $1,800,000. Long-term liabilities and current liabilities to be calculated.

The total asset turnover ratio is the efficiency ratio which is used to measure how much sales is generated by using the firm's total assets.

$\text{Total assets turnover ratio}=\frac{\text{Net sales}}{\text{Total assets}}$

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.

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