Working capital : The measure which evaluates the ability of a company to pay off the short-term debt obligations, by computing the excess of current assets over current liabilities is referred to as working capital. This ratio assesses the liquidity of a company. Formula of working capital: Working capital = Current assets – Current liabilities Current ratio : The financial ratio which evaluates the ability of a company to pay off the debt obligations which mature within one year or within completion of operating cycle is referred to as current ratio. This ratio assesses the liquidity of a company. Formula of current ratio: Current ratio = Current assets Current liabilities Free cash flow : This measure evaluates the cash-generating capacity of a company from its operating activities, after paying capital expenditures and dividends. This ratio assesses the solvency of a company. Formula of free cash flow: Free cash flow = { Net cash provided by operating activities– Capital expenditures– Dividends } Debt to assets ratio : This financial ratio evaluates the ability of a company to pay off long-term debt obligations owed to creditors. This ratio assesses the solvency of a company. Formula of debt to assets ratio: Debt to assets ratio = Total liabilities Total assets Earnings per share (EPS) : The amount of net income available to each shareholder per common share outstanding is referred to as earnings per share (EPS). This ratio assesses the profitability of a company. Formula of EPS: EPS = Net income – Preferred dividends Weighted average common shares outstanding To compute : (a) (i) Working capital, (ii) current ratio (iii) free cash flow (iv) debt to assets ratio (v) earnings per share for Company O for the year 2017.

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Answer 1

Question

Chapter 2, Problem 2.5AP

(a)

To determine

Working capital: The measure which evaluates the ability of a company to pay off the short-term debt obligations, by computing the excess of current assets over current liabilities is referred to as working capital. This ratio assesses the liquidity of a company.

Formula of working capital:

$Working capital = Current assets – Current liabilities$

Current ratio: The financial ratio which evaluates the ability of a company to pay off the debt obligations which mature within one year or within completion of operating cycle is referred to as current ratio. This ratio assesses the liquidity of a company.

Formula of current ratio:

$Current ratio = Current assetsCurrent liabilities$

Free cash flow: This measure evaluates the cash-generating capacity of a company from its operating activities, after paying capital expenditures and dividends. This ratio assesses the solvency of a company.

Formula of free cash flow:

$Free cash flow = {Net cash provided by operating activities–Capital expenditures–Dividends}$

Debt to assets ratio: This financial ratio evaluates the ability of a company to pay off long-term debt obligations owed to creditors. This ratio assesses the solvency of a company.

Formula of debt to assets ratio:

$Debt to assets ratio = Total liabilitiesTotal assets$

Earnings per share (EPS): The amount of net income available to each shareholder per common share outstanding is referred to as earnings per share (EPS). This ratio assesses the profitability of a company.

Formula of EPS:

$EPS = Net income – Preferred dividendsWeighted average common shares outstanding$

To compute: (a) (i) Working capital, (ii) current ratio (iii) free cash flow (iv) debt to assets ratio (v) earnings per share for Company O for the year 2017.

(b)

To determine

To compute: (b) and compare the changes in liquidity, solvency, and profitability of 2017 with the values of 2016

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1 Of the total utilities, 80% relates to manufacturing and 20% relates to general and administrative costs. 2 Of the total insurance, 66% relates to the Factory Plant & Equipment & 33% relates to general & administrative costs. 3 The property taxes should be shared: 75% manufacturing & 25% general & administrative costs. Required: i) Calculate the raw material used in production by Unique School Supplies & Uniforms. ii) What is the total factory overhead costs incurred by Unique School Supplies & Uniforms during the period? iii) Determine the prime cost & conversion cost of the knapsacks manufactured. iv) Prepare a schedule of cost of goods manufactured for the year ended June 30, 2024, clearly showing total manufacturing cost & total manufacturing costs to account for. v) What is the selling price per knapsack if Unique School Supplies & Uniforms manufactured 925 knapsacks for the Debe High School and uses a mark-up of 25% on cost? vi) How does the format of the income statement for a…

Answer 2

Question

Chapter 2, Problem 2.5AP

(a)

To determine

Working capital: The measure which evaluates the ability of a company to pay off the short-term debt obligations, by computing the excess of current assets over current liabilities is referred to as working capital. This ratio assesses the liquidity of a company.

Formula of working capital:

$Working capital = Current assets – Current liabilities$

Current ratio: The financial ratio which evaluates the ability of a company to pay off the debt obligations which mature within one year or within completion of operating cycle is referred to as current ratio. This ratio assesses the liquidity of a company.

Formula of current ratio:

$Current ratio = Current assetsCurrent liabilities$

Free cash flow: This measure evaluates the cash-generating capacity of a company from its operating activities, after paying capital expenditures and dividends. This ratio assesses the solvency of a company.

Formula of free cash flow:

$Free cash flow = {Net cash provided by operating activities–Capital expenditures–Dividends}$

Debt to assets ratio: This financial ratio evaluates the ability of a company to pay off long-term debt obligations owed to creditors. This ratio assesses the solvency of a company.

Formula of debt to assets ratio:

$Debt to assets ratio = Total liabilitiesTotal assets$

Earnings per share (EPS): The amount of net income available to each shareholder per common share outstanding is referred to as earnings per share (EPS). This ratio assesses the profitability of a company.

Formula of EPS:

$EPS = Net income – Preferred dividendsWeighted average common shares outstanding$

To compute: (a) (i) Working capital, (ii) current ratio (iii) free cash flow (iv) debt to assets ratio (v) earnings per share for Company O for the year 2017.

(b)

To determine

To compute: (b) and compare the changes in liquidity, solvency, and profitability of 2017 with the values of 2016

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Answer 3

Question

Chapter 2, Problem 2.5AP

(a)

To determine

Working capital: The measure which evaluates the ability of a company to pay off the short-term debt obligations, by computing the excess of current assets over current liabilities is referred to as working capital. This ratio assesses the liquidity of a company.

Formula of working capital:

$Working capital = Current assets – Current liabilities$

Current ratio: The financial ratio which evaluates the ability of a company to pay off the debt obligations which mature within one year or within completion of operating cycle is referred to as current ratio. This ratio assesses the liquidity of a company.

Formula of current ratio:

$Current ratio = Current assetsCurrent liabilities$

Free cash flow: This measure evaluates the cash-generating capacity of a company from its operating activities, after paying capital expenditures and dividends. This ratio assesses the solvency of a company.

Formula of free cash flow:

$Free cash flow = {Net cash provided by operating activities–Capital expenditures–Dividends}$

Debt to assets ratio: This financial ratio evaluates the ability of a company to pay off long-term debt obligations owed to creditors. This ratio assesses the solvency of a company.

Formula of debt to assets ratio:

$Debt to assets ratio = Total liabilitiesTotal assets$

Earnings per share (EPS): The amount of net income available to each shareholder per common share outstanding is referred to as earnings per share (EPS). This ratio assesses the profitability of a company.

Formula of EPS:

$EPS = Net income – Preferred dividendsWeighted average common shares outstanding$

To compute: (a) (i) Working capital, (ii) current ratio (iii) free cash flow (iv) debt to assets ratio (v) earnings per share for Company O for the year 2017.

(b)

To determine

To compute: (b) and compare the changes in liquidity, solvency, and profitability of 2017 with the values of 2016

Expert Solution & Answer

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Answer 4

Question

Chapter 2, Problem 2.5AP

(a)

To determine

Working capital: The measure which evaluates the ability of a company to pay off the short-term debt obligations, by computing the excess of current assets over current liabilities is referred to as working capital. This ratio assesses the liquidity of a company.

Formula of working capital:

$Working capital = Current assets – Current liabilities$

Current ratio: The financial ratio which evaluates the ability of a company to pay off the debt obligations which mature within one year or within completion of operating cycle is referred to as current ratio. This ratio assesses the liquidity of a company.

Formula of current ratio:

$Current ratio = Current assetsCurrent liabilities$

Free cash flow: This measure evaluates the cash-generating capacity of a company from its operating activities, after paying capital expenditures and dividends. This ratio assesses the solvency of a company.

Formula of free cash flow:

$Free cash flow = {Net cash provided by operating activities–Capital expenditures–Dividends}$

Debt to assets ratio: This financial ratio evaluates the ability of a company to pay off long-term debt obligations owed to creditors. This ratio assesses the solvency of a company.

Formula of debt to assets ratio:

$Debt to assets ratio = Total liabilitiesTotal assets$

Earnings per share (EPS): The amount of net income available to each shareholder per common share outstanding is referred to as earnings per share (EPS). This ratio assesses the profitability of a company.

Formula of EPS:

$EPS = Net income – Preferred dividendsWeighted average common shares outstanding$

To compute: (a) (i) Working capital, (ii) current ratio (iii) free cash flow (iv) debt to assets ratio (v) earnings per share for Company O for the year 2017.

(b)

To determine

To compute: (b) and compare the changes in liquidity, solvency, and profitability of 2017 with the values of 2016

Expert Solution & Answer

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Answer 5

Chapter 2, Problem 2.5AP

(a)

To determine

Working capital: The measure which evaluates the ability of a company to pay off the short-term debt obligations, by computing the excess of current assets over current liabilities is referred to as working capital. This ratio assesses the liquidity of a company.

Formula of working capital:

$Working capital = Current assets – Current liabilities$

Current ratio: The financial ratio which evaluates the ability of a company to pay off the debt obligations which mature within one year or within completion of operating cycle is referred to as current ratio. This ratio assesses the liquidity of a company.

Formula of current ratio:

$Current ratio = Current assetsCurrent liabilities$

Free cash flow: This measure evaluates the cash-generating capacity of a company from its operating activities, after paying capital expenditures and dividends. This ratio assesses the solvency of a company.

Formula of free cash flow:

$Free cash flow = {Net cash provided by operating activities–Capital expenditures–Dividends}$

Debt to assets ratio: This financial ratio evaluates the ability of a company to pay off long-term debt obligations owed to creditors. This ratio assesses the solvency of a company.

Formula of debt to assets ratio:

$Debt to assets ratio = Total liabilitiesTotal assets$

Earnings per share (EPS): The amount of net income available to each shareholder per common share outstanding is referred to as earnings per share (EPS). This ratio assesses the profitability of a company.

Formula of EPS:

$EPS = Net income – Preferred dividendsWeighted average common shares outstanding$

To compute: (a) (i) Working capital, (ii) current ratio (iii) free cash flow (iv) debt to assets ratio (v) earnings per share for Company O for the year 2017.

(b)

To determine

To compute: (b) and compare the changes in liquidity, solvency, and profitability of 2017 with the values of 2016

Answer 6

Chapter 2, Problem 2.5AP

(a)

To determine

Working capital: The measure which evaluates the ability of a company to pay off the short-term debt obligations, by computing the excess of current assets over current liabilities is referred to as working capital. This ratio assesses the liquidity of a company.

Formula of working capital:

$Working capital = Current assets – Current liabilities$

Current ratio: The financial ratio which evaluates the ability of a company to pay off the debt obligations which mature within one year or within completion of operating cycle is referred to as current ratio. This ratio assesses the liquidity of a company.

Formula of current ratio:

$Current ratio = Current assetsCurrent liabilities$

Free cash flow: This measure evaluates the cash-generating capacity of a company from its operating activities, after paying capital expenditures and dividends. This ratio assesses the solvency of a company.

Formula of free cash flow:

$Free cash flow = {Net cash provided by operating activities–Capital expenditures–Dividends}$

Debt to assets ratio: This financial ratio evaluates the ability of a company to pay off long-term debt obligations owed to creditors. This ratio assesses the solvency of a company.

Formula of debt to assets ratio:

$Debt to assets ratio = Total liabilitiesTotal assets$

Earnings per share (EPS): The amount of net income available to each shareholder per common share outstanding is referred to as earnings per share (EPS). This ratio assesses the profitability of a company.

Formula of EPS:

$EPS = Net income – Preferred dividendsWeighted average common shares outstanding$

To compute: (a) (i) Working capital, (ii) current ratio (iii) free cash flow (iv) debt to assets ratio (v) earnings per share for Company O for the year 2017.

Answer 7

Chapter 2, Problem 2.5AP

(a)

To determine

Working capital: The measure which evaluates the ability of a company to pay off the short-term debt obligations, by computing the excess of current assets over current liabilities is referred to as working capital. This ratio assesses the liquidity of a company.

Formula of working capital:

$Working capital = Current assets – Current liabilities$

Current ratio: The financial ratio which evaluates the ability of a company to pay off the debt obligations which mature within one year or within completion of operating cycle is referred to as current ratio. This ratio assesses the liquidity of a company.

Formula of current ratio:

$Current ratio = Current assetsCurrent liabilities$

Free cash flow: This measure evaluates the cash-generating capacity of a company from its operating activities, after paying capital expenditures and dividends. This ratio assesses the solvency of a company.

Formula of free cash flow:

$Free cash flow = {Net cash provided by operating activities–Capital expenditures–Dividends}$

Debt to assets ratio: This financial ratio evaluates the ability of a company to pay off long-term debt obligations owed to creditors. This ratio assesses the solvency of a company.

Formula of debt to assets ratio:

$Debt to assets ratio = Total liabilitiesTotal assets$

Earnings per share (EPS): The amount of net income available to each shareholder per common share outstanding is referred to as earnings per share (EPS). This ratio assesses the profitability of a company.

Formula of EPS:

$EPS = Net income – Preferred dividendsWeighted average common shares outstanding$

To compute: (a) (i) Working capital, (ii) current ratio (iii) free cash flow (iv) debt to assets ratio (v) earnings per share for Company O for the year 2017.

Answer 8

(b)

To determine

To compute: (b) and compare the changes in liquidity, solvency, and profitability of 2017 with the values of 2016

Answer 9

(b)

To determine

To compute: (b) and compare the changes in liquidity, solvency, and profitability of 2017 with the values of 2016

Answer 10

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Answer 11

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Answer 12

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Answer 13

Ch. 2 - What is meant by the term operating cycle?Ch. 2 - Define current assets. What basis is used for...Ch. 2 - Prob. 3Q Ch. 2 - Prob. 4Q Ch. 2 - Prob. 5Q Ch. 2 - Prob. 6Q Ch. 2 - Prob. 7Q Ch. 2 - Prob. 8Q Ch. 2 - What do these classes of ratios measure? (a)...Ch. 2 - Prob. 10Q

Solution Summary: The author explains working capital, debt to assets ratio, free cash flow, and earnings per share.

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To compute: (b) and compare the changes in liquidity, solvency, and profitability of 2017 with the values of 2016

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