Chapter 3, Problem 26QP

a)

Summary Introduction

To find: The financial ratios of Company SG.

Introduction:

The process of analysing and calculating the financial ratios in order to assess the performance of the firm and to find the actions that are necessary to improve the firm’s performance is called the ratio analysis.

Explanation of Solution

Given information:

The balance sheet of the Company SG shows the following information:

• The total assets for the year 2011 are $386,581 and for 2012 are $432,379.
• The current assets for the year 2011 are $61,886 and for 2012 are $66,645.
• The current liabilities for the year 2011 are $46,755 and for 2012 are $53,773.
• The total liabilities and equity for the year 2011 are 386,581 and for 2012 are $432,379.
• The cash at the beginning and end of the year is $24,046 and $24,255 respectively.
• The accounts receivable for the year 2011 and 2012 is $12,448 and $15,235 respectively.
• The inventory for the year 2011 and 2012 is $25,392 and $27,155 respectively.
• The fixed asset for the year 2011 and 2012 is $324,695 and $365,734 respectively.
• The accounts payable for the year 2011 and 2012 is $23,184 and $27,420 respectively.
• The other current liabilities for the year 2011 and 2012 are $11,571 and $15,553 respectively.
• The notes payable for the year 2011 and 2012 is $12,000 and $10,800 respectively.
• The long-term debt for the year 2011 and 2012 is $80,000 and $95,000.
• The common stock and paid in surplus for 2011 are $40,000 and for 2012 are $40,000.
• The accumulated retained earnings for 2011 are $219,826 and 2012 are $243,606.
• The net income is $43,780.
• The depreciation is $32,220.
• The dividend paid is $20,000.
• The cost of goods sold amounts to $253,122.
• The sales is $366,996.
• The earnings before interest and taxes are $81,654.
• The interest paid is $14,300.
• The retained earnings are $23,780.
• The taxable income is $67,354.

Explanation:

Short-term solvency ratios:

Formula to calculate the current ratio:

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

Compute the current ratio:

$\begin{array}{c}\text{Current ratio}=\frac{\text{Current assets}}{\text{Current liabilities}}\\ \text{Current ratio for 2011}=\frac{\$61,886}{\$46,755}\\ =1.32\text{ times}\end{array}$

Hence, the current ratio for 2011 is 1.32 times.

$\begin{array}{c}\text{Current ratio}=\frac{\text{Current assets}}{\text{Current liabilities}}\\ \text{Current ratio for 2012}=\frac{\$66,645}{\$53,773}\\ =1.24\text{ times}\end{array}$

Hence, the current ratio for 2012 is 1.24 times.

b)

Summary Introduction

To find: The financial ratios of Company SG.

Introduction:

The process of analysing and calculating the financial ratios in order to assess the performance of the firm and to find the actions that are necessary to improve the firm’s performance is called the ratio analysis.

Explanation of Solution

Given information:

The balance sheet of the Company SG shows the following information:

• The total assets for the year 2011 are $386,581 and for 2012 are $432,379.
• The current assets for the year 2011 are $61,886 and for 2012 are $66,645.
• The current liabilities for the year 2011 are $46,755 and for 2012 are $53,773.
• The total liabilities and equity for the year 2011 are 386,581 and for 2012 are $432,379.
• The cash at the beginning and end of the year is $24,046 and $24,255 respectively.
• The accounts receivable for the year 2011 and 2012 is $12,448 and $15,235 respectively.
• The inventory for the year 2011 and 2012 is $25,392 and $27,155 respectively.
• The fixed asset for the year 2011 and 2012 is $324,695 and $365,734 respectively.
• The accounts payable for the year 2011 and 2012 is $23,184 and $27,420 respectively.
• The other current liabilities for the year 2011 and 2012 are $11,571 and $15,553 respectively.
• The notes payable for the year 2011 and 2012 is $12,000 and $10,800 respectively.
• The long-term debt for the year 2011 and 2012 is $80,000 and $95,000.
• The common stock and paid in surplus for 2011 are $40,000 and for 2012 are $40,000.
• The accumulated retained earnings for 2011 are $219,826 and 2012 are $243,606.
• The net income is $43,780.
• The depreciation is $32,220.
• The dividend paid is $20,000.
• The cost of goods sold amounts to $253,122.
• The sales is $366,996.
• The earnings before interest and taxes are $81,654.
• The interest paid is $14,300.
• The retained earnings are $23,780.
• The taxable income is $67,354.

Formula to calculate Quick ratio:

$\text{Quickratio}=\frac{\left(\text{Current assets}-\text{Inventory}\right)}{\text{Current liabilities}}$

Compute the quick ratio:

$\begin{array}{c}\text{Quick ratio for 2011}=\frac{\left(\text{Current assets}-\text{Inventory}\right)}{\text{Current liabilities}}\\ =\frac{\left(\$61,886-\$25,392\right)}{\$46,755}\\ =0.78\text{times}\end{array}$

Hence, the quick ratio for 2011 is 0.78 times.

$\begin{array}{c}\text{Quick ratio for 2012}=\frac{\left(\text{Current assets}-\text{Inventory}\right)}{\text{Current liabilities}}\\ =\frac{\left(\$66,645-\$27,155\right)}{\$53,773}\\ =0.73\text{times}\end{array}$

Hence, the quick ratio for 2012 is 0.73 times.

c)

Summary Introduction

To find: The financial ratios of Company SG.

Introduction:

The process of analysing and calculating the financial ratios in order to assess the performance of the firm and to find the actions that are necessary to improve the firm’s performance is called the ratio analysis.

Explanation of Solution

Given information:

The balance sheet of the Company SG shows the following information:

• The total assets for the year 2011 are $386,581 and for 2012 are $432,379.
• The current assets for the year 2011 are $61,886 and for 2012 are $66,645.
• The current liabilities for the year 2011 are $46,755 and for 2012 are $53,773.
• The total liabilities and equity for the year 2011 are 386,581 and for 2012 are $432,379.
• The cash at the beginning and end of the year is $24,046 and $24,255 respectively.
• The accounts receivable for the year 2011 and 2012 is $12,448 and $15,235 respectively.
• The inventory for the year 2011 and 2012 is $25,392 and $27,155 respectively.
• The fixed asset for the year 2011 and 2012 is $324,695 and $365,734 respectively.
• The accounts payable for the year 2011 and 2012 is $23,184 and $27,420 respectively.
• The other current liabilities for the year 2011 and 2012 are $11,571 and $15,553 respectively.
• The notes payable for the year 2011 and 2012 is $12,000 and $10,800 respectively.
• The long-term debt for the year 2011 and 2012 is $80,000 and $95,000.
• The common stock and paid in surplus for 2011 are $40,000 and for 2012 are $40,000.
• The accumulated retained earnings for 2011 are $219,826 and 2012 are $243,606.
• The net income is $43,780.
• The depreciation is $32,220.
• The dividend paid is $20,000.
• The cost of goods sold amounts to $253,122.
• The sales is $366,996.
• The earnings before interest and taxes are $81,654.
• The interest paid is $14,300.
• The retained earnings are $23,780.
• The taxable income is $67,354.

Formula to calculate the cash ratio:

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

Compute the cash ratio:

$\begin{array}{c}\text{Cash ratio for 2011}=\frac{\text{Cash}}{\text{Current liabilities}}\\ =\frac{\$24,046}{\$46,755}\\ =0.51\text{ times}\end{array}$

Hence, the cash ratio for 2011 is 0.51 times.

$\begin{array}{c}\text{Cash ratio for 2012}=\frac{\text{Cash}}{\text{Current liabilities}}\\ =\frac{\$24,255}{\$53,773}\\ =0.45\text{ times}\end{array}$

Hence, the cash ratio for 2012 is 0.45 times.

d)

Summary Introduction

To find: The financial ratios of Company SG.

Introduction:

The process of analysing and calculating the financial ratios in order to assess the performance of the firm and to find the actions that are necessary to improve the firm’s performance is called the ratio analysis.

Explanation of Solution

Given information:

The balance sheet of the Company SG shows the following information:

• The total assets for the year 2011 are $386,581 and for 2012 are $432,379.
• The current assets for the year 2011 are $61,886 and for 2012 are $66,645.
• The current liabilities for the year 2011 are $46,755 and for 2012 are $53,773.
• The total liabilities and equity for the year 2011 are 386,581 and for 2012 are $432,379.
• The cash at the beginning and end of the year is $24,046 and $24,255 respectively.
• The accounts receivable for the year 2011 and 2012 is $12,448 and $15,235 respectively.
• The inventory for the year 2011 and 2012 is $25,392 and $27,155 respectively.
• The fixed asset for the year 2011 and 2012 is $324,695 and $365,734 respectively.
• The accounts payable for the year 2011 and 2012 is $23,184 and $27,420 respectively.
• The other current liabilities for the year 2011 and 2012 are $11,571 and $15,553 respectively.
• The notes payable for the year 2011 and 2012 is $12,000 and $10,800 respectively.
• The long-term debt for the year 2011 and 2012 is $80,000 and $95,000.
• The common stock and paid in surplus for 2011 are $40,000 and for 2012 are $40,000.
• The accumulated retained earnings for 2011 are $219,826 and 2012 are $243,606.
• The net income is $43,780.
• The depreciation is $32,220.
• The dividend paid is $20,000.
• The cost of goods sold amounts to $253,122.
• The sales is $366,996.
• The earnings before interest and taxes are $81,654.
• The interest paid is $14,300.
• The retained earnings are $23,780.
• The taxable income is $67,354.

Formula to calculate the total asset turnover ratio:

$\text{Total asset turnover ratio}=\frac{\text{Sales}}{\text{Total assets}}$

Compute the total asset turnover ratio:

$\begin{array}{c}\text{Total asset turnover ratio}=\frac{\text{Sales}}{\text{Total assets}}\\ =\frac{\$366,996}{\$432,379}\\ =0.85\text{times}\end{array}$

Hence, the total asset turnover ratio is 0.85 times.

e)

Summary Introduction

To find: The financial ratios of Company SG.

Introduction:

The process of analysing and calculating the financial ratios in order to assess the performance of the firm and to find the actions that are necessary to improve the firm’s performance is called the ratio analysis.

Explanation of Solution

Given information:

The balance sheet of the Company SG shows the following information:

• The total assets for the year 2011 are $386,581 and for 2012 are $432,379.
• The current assets for the year 2011 are $61,886 and for 2012 are $66,645.
• The current liabilities for the year 2011 are $46,755 and for 2012 are $53,773.
• The total liabilities and equity for the year 2011 are 386,581 and for 2012 are $432,379.
• The cash at the beginning and end of the year is $24,046 and $24,255 respectively.
• The accounts receivable for the year 2011 and 2012 is $12,448 and $15,235 respectively.
• The inventory for the year 2011 and 2012 is $25,392 and $27,155 respectively.
• The fixed asset for the year 2011 and 2012 is $324,695 and $365,734 respectively.
• The accounts payable for the year 2011 and 2012 is $23,184 and $27,420 respectively.
• The other current liabilities for the year 2011 and 2012 are $11,571 and $15,553 respectively.
• The notes payable for the year 2011 and 2012 is $12,000 and $10,800 respectively.
• The long-term debt for the year 2011 and 2012 is $80,000 and $95,000.
• The common stock and paid in surplus for 2011 are $40,000 and for 2012 are $40,000.
• The accumulated retained earnings for 2011 are $219,826 and 2012 are $243,606.
• The net income is $43,780.
• The depreciation is $32,220.
• The dividend paid is $20,000.
• The cost of goods sold amounts to $253,122.
• The sales is $366,996.
• The earnings before interest and taxes are $81,654.
• The interest paid is $14,300.
• The retained earnings are $23,780.
• The taxable income is $67,354.

Formula to calculate the inventory turnover ratio:

$\text{Inventory turnover ratio}=\frac{\text{Cost of goods sold}}{\text{Inventory}}$

Compute the inventory turnover ratio:

$\begin{array}{c}\text{Inventory turnover ratio}=\frac{\text{Cost of goods sold}}{\text{Inventory}}\\ =\frac{\$253,122}{\$27,155}\\ =9.32\text{ times}\end{array}$

Hence, the inventory turnover ratio is 9.32 times.

f)

Summary Introduction

To find: The financial ratios of Company SG.

Introduction:

The process of analysing and calculating the financial ratios in order to assess the performance of the firm and to find the actions that are necessary to improve the firm’s performance is called the ratio analysis.

Explanation of Solution

Given information:

The balance sheet of the Company SG shows the following information:

• The total assets for the year 2011 are $386,581 and for 2012 are $432,379.
• The current assets for the year 2011 are $61,886 and for 2012 are $66,645.
• The current liabilities for the year 2011 are $46,755 and for 2012 are $53,773.
• The total liabilities and equity for the year 2011 are 386,581 and for 2012 are $432,379.
• The cash at the beginning and end of the year is $24,046 and $24,255 respectively.
• The accounts receivable for the year 2011 and 2012 is $12,448 and $15,235 respectively.
• The inventory for the year 2011 and 2012 is $25,392 and $27,155 respectively.
• The fixed asset for the year 2011 and 2012 is $324,695 and $365,734 respectively.
• The accounts payable for the year 2011 and 2012 is $23,184 and $27,420 respectively.
• The other current liabilities for the year 2011 and 2012 are $11,571 and $15,553 respectively.
• The notes payable for the year 2011 and 2012 is $12,000 and $10,800 respectively.
• The long-term debt for the year 2011 and 2012 is $80,000 and $95,000.
• The common stock and paid in surplus for 2011 are $40,000 and for 2012 are $40,000.
• The accumulated retained earnings for 2011 are $219,826 and 2012 are $243,606.
• The net income is $43,780.
• The depreciation is $32,220.
• The dividend paid is $20,000.
• The cost of goods sold amounts to $253,122.
• The sales is $366,996.
• The earnings before interest and taxes are $81,654.
• The interest paid is $14,300.
• The retained earnings are $23,780.
• The taxable income is $67,354.

Formula to calculate the receivables turnover ratio:

$\text{Receivables turnover ratio}=\frac{\text{Sales}}{\text{Accounts receivables}}$

Compute the receivables turnover ratio:

$\begin{array}{c}\text{Receivables turnover ratio}=\frac{\text{Sales}}{\text{Accounts receivables}}\\ =\frac{\$3,66,996}{\$15,235}\\ =24.09\text{ times}\end{array}$

Hence, the receivables turnover ratio is 24.09 times.

g)

Summary Introduction

To find: The financial ratios of Company SG.

Introduction:

The process of analysing and calculating the financial ratios in order to assess the performance of the firm and to find the actions that are necessary to improve the firm’s performance is called the ratio analysis.

Explanation of Solution

Given information:

The balance sheet of the Company SG shows the following information:

• The total assets for the year 2011 are $386,581 and for 2012 are $432,379.
• The current assets for the year 2011 are $61,886 and for 2012 are $66,645.
• The current liabilities for the year 2011 are $46,755 and for 2012 are $53,773.
• The total liabilities and equity for the year 2011 are 386,581 and for 2012 are $432,379.
• The cash at the beginning and end of the year is $24,046 and $24,255 respectively.
• The accounts receivable for the year 2011 and 2012 is $12,448 and $15,235 respectively.
• The inventory for the year 2011 and 2012 is $25,392 and $27,155 respectively.
• The fixed asset for the year 2011 and 2012 is $324,695 and $365,734 respectively.
• The accounts payable for the year 2011 and 2012 is $23,184 and $27,420 respectively.
• The other current liabilities for the year 2011 and 2012 are $11,571 and $15,553 respectively.
• The notes payable for the year 2011 and 2012 is $12,000 and $10,800 respectively.
• The long-term debt for the year 2011 and 2012 is $80,000 and $95,000.
• The common stock and paid in surplus for 2011 are $40,000 and for 2012 are $40,000.
• The accumulated retained earnings for 2011 are $219,826 and 2012 are $243,606.
• The net income is $43,780.
• The depreciation is $32,220.
• The dividend paid is $20,000.
• The cost of goods sold amounts to $253,122.
• The sales is $366,996.
• The earnings before interest and taxes are $81,654.
• The interest paid is $14,300.
• The retained earnings are $23,780.
• The taxable income is $67,354.

Formula to calculate the total debt ratio:

$\text{Total debt ratio = }\frac{\left(\text{Total assets}-\text{Total equity}\right)}{\text{Total assets}}$

Compute the total debt ratio:

$\begin{array}{c}\text{Total debt ratio for 2011 = }\frac{\left(\text{Total assets}-\text{Total equity}\right)}{\text{Total assets}}\\ =\frac{\left(\$386,581-\$259,826\right)}{\$386,581}\\ =0.33\text{times}\end{array}$

Hence, the total debt ratio for 2011 is 0.33 times.

$\begin{array}{c}\text{Total debt ratio for 2012 = }\frac{\left(\text{Total assets}-\text{Total equity}\right)}{\text{Total assets}}\\ =\frac{\left(\$432,379-\$283,606\right)}{\$432,379}\\ =0.34\text{times}\end{array}$

Hence, the total debt ratio for 2012 is 0.34 times.

h)

Summary Introduction

To find: The financial ratios of Company SG.

Introduction:

The process of analysing and calculating the financial ratios in order to assess the performance of the firm and to find the actions that are necessary to improve the firm’s performance is called the ratio analysis.

Explanation of Solution

Given information:

The balance sheet of the Company SG shows the following information:

• The total assets for the year 2011 are $386,581 and for 2012 are $432,379.
• The current assets for the year 2011 are $61,886 and for 2012 are $66,645.
• The current liabilities for the year 2011 are $46,755 and for 2012 are $53,773.
• The total liabilities and equity for the year 2011 are 386,581 and for 2012 are $432,379.
• The cash at the beginning and end of the year is $24,046 and $24,255 respectively.
• The accounts receivable for the year 2011 and 2012 is $12,448 and $15,235 respectively.
• The inventory for the year 2011 and 2012 is $25,392 and $27,155 respectively.
• The fixed asset for the year 2011 and 2012 is $324,695 and $365,734 respectively.
• The accounts payable for the year 2011 and 2012 is $23,184 and $27,420 respectively.
• The other current liabilities for the year 2011 and 2012 are $11,571 and $15,553 respectively.
• The notes payable for the year 2011 and 2012 is $12,000 and $10,800 respectively.
• The long-term debt for the year 2011 and 2012 is $80,000 and $95,000.
• The common stock and paid in surplus for 2011 are $40,000 and for 2012 are $40,000.
• The accumulated retained earnings for 2011 are $219,826 and 2012 are $243,606.
• The net income is $43,780.
• The depreciation is $32,220.
• The dividend paid is $20,000.
• The cost of goods sold amounts to $253,122.
• The sales is $366,996.
• The earnings before interest and taxes are $81,654.
• The interest paid is $14,300.
• The retained earnings are $23,780.
• The taxable income is $67,354.

Formula to calculate the debt-equity ratio:

$\text{Debt-equity ratio}=\frac{\text{Total debt}}{\text{Total equity}}$

Compute the debt-equity:

$\begin{array}{c}\text{Debt-equity ratio for 2011}=\frac{\text{Total debt}}{\text{Total equity}}\\ =\frac{\$46,755+\$80,000}{\$259,286}\\ =0.49\text{ times}\end{array}$

Hence, the debt-equity ratio for the year 2011 is 0.49 times.

$\begin{array}{c}\text{Debt-equity ratio for 2012}=\frac{\text{Total debt}}{\text{Total equity}}\\ =\frac{\$53,773+\$95,000}{\$283,606}\\ =0.52\text{ times}\end{array}$

Hence, the debt-equity ratio for the year 2012 is 0.52 times.

Note: The total debt is calculated by adding the total-long term debt and total current liabilities.

i)

Summary Introduction

To find: The financial ratios of Company SG.

Introduction:

The process of analysing and calculating the financial ratios in order to assess the performance of the firm and to find the actions that are necessary to improve the firm’s performance is called the ratio analysis.

Explanation of Solution

Given information:

The balance sheet of the Company SG shows the following information:

• The total assets for the year 2011 are $386,581 and for 2012 are $432,379.
• The current assets for the year 2011 are $61,886 and for 2012 are $66,645.
• The current liabilities for the year 2011 are $46,755 and for 2012 are $53,773.
• The total liabilities and equity for the year 2011 are 386,581 and for 2012 are $432,379.
• The cash at the beginning and end of the year is $24,046 and $24,255 respectively.
• The accounts receivable for the year 2011 and 2012 is $12,448 and $15,235 respectively.
• The inventory for the year 2011 and 2012 is $25,392 and $27,155 respectively.
• The fixed asset for the year 2011 and 2012 is $324,695 and $365,734 respectively.
• The accounts payable for the year 2011 and 2012 is $23,184 and $27,420 respectively.
• The other current liabilities for the year 2011 and 2012 are $11,571 and $15,553 respectively.
• The notes payable for the year 2011 and 2012 is $12,000 and $10,800 respectively.
• The long-term debt for the year 2011 and 2012 is $80,000 and $95,000.
• The common stock and paid in surplus for 2011 are $40,000 and for 2012 are $40,000.
• The accumulated retained earnings for 2011 are $219,826 and 2012 are $243,606.
• The net income is $43,780.
• The depreciation is $32,220.
• The dividend paid is $20,000.
• The cost of goods sold amounts to $253,122.
• The sales is $366,996.
• The earnings before interest and taxes are $81,654.
• The interest paid is $14,300.
• The retained earnings are $23,780.
• The taxable income is $67,354.

Formula to calculate the equity multiplier:

$\text{Equity multiplier ratio}=1+\text{Debt-equity ratio}$

Compute the equity multiplier ratio for the year 2011:

$\begin{array}{c}\text{Equity multiplier ratio for 2011}=1+\text{Debt-equity ratio}\\ =1+0.49\\ =1.49\text{ times}\end{array}$

Hence, the equity multiplier ratio for the year 2011 is 1.49 times.

$\begin{array}{c}\text{Equity multiplier ratio for 2012}=1+\text{Debt-equity ratio}\\ =1+0.52\\ =1.52\text{ times}\end{array}$

Hence, the equity multiplier ratio for the year 2012 is 1.52 times.

j)

Summary Introduction

To find: The financial ratios of Company SG.

Introduction:

The process of analysing and calculating the financial ratios in order to assess the performance of the firm and to find the actions that are necessary to improve the firm’s performance is called the ratio analysis.

Explanation of Solution

Given information:

The balance sheet of the Company SG shows the following information:

• The total assets for the year 2011 are $386,581 and for 2012 are $432,379.
• The current assets for the year 2011 are $61,886 and for 2012 are $66,645.
• The current liabilities for the year 2011 are $46,755 and for 2012 are $53,773.
• The total liabilities and equity for the year 2011 are 386,581 and for 2012 are $432,379.
• The cash at the beginning and end of the year is $24,046 and $24,255 respectively.
• The accounts receivable for the year 2011 and 2012 is $12,448 and $15,235 respectively.
• The inventory for the year 2011 and 2012 is $25,392 and $27,155 respectively.
• The fixed asset for the year 2011 and 2012 is $324,695 and $365,734 respectively.
• The accounts payable for the year 2011 and 2012 is $23,184 and $27,420 respectively.
• The other current liabilities for the year 2011 and 2012 are $11,571 and $15,553 respectively.
• The notes payable for the year 2011 and 2012 is $12,000 and $10,800 respectively.
• The long-term debt for the year 2011 and 2012 is $80,000 and $95,000.
• The common stock and paid in surplus for 2011 are $40,000 and for 2012 are $40,000.
• The accumulated retained earnings for 2011 are $219,826 and 2012 are $243,606.
• The net income is $43,780.
• The depreciation is $32,220.
• The dividend paid is $20,000.
• The cost of goods sold amounts to $253,122.
• The sales is $366,996.
• The earnings before interest and taxes are $81,654.
• The interest paid is $14,300.
• The retained earnings are $23,780.
• The taxable income is $67,354.

Formula to calculate the times interest earned ratio:

$\text{Times interest earned}=\frac{\text{Earnings before interest and taxes}}{\text{Interest}}$

Compute the times interest earned ratio:

$\begin{array}{c}\text{Times interest earned}=\frac{\text{Earnings before interest and taxes}}{\text{Interest}}\\ =\frac{\$81,654}{\$14,300}\\ =5.71\text{ times}\end{array}$

Hence, the times interest earned is 5.71 times.

k)

Summary Introduction

To find: The financial ratios of Company SG.

Introduction:

The process of analysing and calculating the financial ratios in order to assess the performance of the firm and to find the actions that are necessary to improve the firm’s performance is called the ratio analysis.

Explanation of Solution

Given information:

The balance sheet of the Company SG shows the following information:

• The total assets for the year 2011 are $386,581 and for 2012 are $432,379.
• The current assets for the year 2011 are $61,886 and for 2012 are $66,645.
• The current liabilities for the year 2011 are $46,755 and for 2012 are $53,773.
• The total liabilities and equity for the year 2011 are 386,581 and for 2012 are $432,379.
• The cash at the beginning and end of the year is $24,046 and $24,255 respectively.
• The accounts receivable for the year 2011 and 2012 is $12,448 and $15,235 respectively.
• The inventory for the year 2011 and 2012 is $25,392 and $27,155 respectively.
• The fixed asset for the year 2011 and 2012 is $324,695 and $365,734 respectively.
• The accounts payable for the year 2011 and 2012 is $23,184 and $27,420 respectively.
• The other current liabilities for the year 2011 and 2012 are $11,571 and $15,553 respectively.
• The notes payable for the year 2011 and 2012 is $12,000 and $10,800 respectively.
• The long-term debt for the year 2011 and 2012 is $80,000 and $95,000.
• The common stock and paid in surplus for 2011 are $40,000 and for 2012 are $40,000.
• The accumulated retained earnings for 2011 are $219,826 and 2012 are $243,606.
• The net income is $43,780.
• The depreciation is $32,220.
• The dividend paid is $20,000.
• The cost of goods sold amounts to $253,122.
• The sales is $366,996.
• The earnings before interest and taxes are $81,654.
• The interest paid is $14,300.
• The retained earnings are $23,780.
• The taxable income is $67,354.

Formula to calculate the cash coverage ratio:

$\text{Cash coverage ratio}=\frac{\text{Earnings before interest and taxes}+\text{Depreciation}}{\text{Interest}}$

Compute the cash coverage ratio:

$\begin{array}{c}\text{Cash coverage ratio}=\frac{\text{Earnings before interest and taxes}+\text{Depreciation}}{\text{Interest}}\\ =\frac{\$81,654+\$32,220}{\$14,300}\\ =7.96\text{ times}\end{array}$

Hence, the cash coverage ratio is 7.96 times.

l)

Summary Introduction

To find: The financial ratios of Company SG.

Introduction:

The process of analysing and calculating the financial ratios in order to assess the performance of the firm and to find the actions that are necessary to improve the firm’s performance is called the ratio analysis.

Explanation of Solution

Given information:

The balance sheet of the Company SG shows the following information:

• The total assets for the year 2011 are $386,581 and for 2012 are $432,379.
• The current assets for the year 2011 are $61,886 and for 2012 are $66,645.
• The current liabilities for the year 2011 are $46,755 and for 2012 are $53,773.
• The total liabilities and equity for the year 2011 are 386,581 and for 2012 are $432,379.
• The cash at the beginning and end of the year is $24,046 and $24,255 respectively.
• The accounts receivable for the year 2011 and 2012 is $12,448 and $15,235 respectively.
• The inventory for the year 2011 and 2012 is $25,392 and $27,155 respectively.
• The fixed asset for the year 2011 and 2012 is $324,695 and $365,734 respectively.
• The accounts payable for the year 2011 and 2012 is $23,184 and $27,420 respectively.
• The other current liabilities for the year 2011 and 2012 are $11,571 and $15,553 respectively.
• The notes payable for the year 2011 and 2012 is $12,000 and $10,800 respectively.
• The long-term debt for the year 2011 and 2012 is $80,000 and $95,000.
• The common stock and paid in surplus for 2011 are $40,000 and for 2012 are $40,000.
• The accumulated retained earnings for 2011 are $219,826 and 2012 are $243,606.
• The net income is $43,780.
• The depreciation is $32,220.
• The dividend paid is $20,000.
• The cost of goods sold amounts to $253,122.
• The sales is $366,996.
• The earnings before interest and taxes are $81,654.
• The interest paid is $14,300.
• The retained earnings are $23,780.
• The taxable income is $67,354.

Formula to calculate the profit margin ratio:

$\text{Profit margin}=\frac{\text{Net income}}{\text{Sales}}$

Compute the profit margin:

$\begin{array}{c}\text{Profit margin}=\frac{\text{Net income}}{\text{Sales}}\\ =\frac{\$43,780}{\$366,996}\\ =0.1193\text{ or }11.93\%\end{array}$

Hence, the profit margin is 11.93%.

m)

Summary Introduction

To find: The financial ratios of Company SG.

Introduction:

The process of analysing and calculating the financial ratios in order to assess the performance of the firm and to find the actions that are necessary to improve the firm’s performance is called the ratio analysis.

Explanation of Solution

Given information:

The balance sheet of the Company SG shows the following information:

• The total assets for the year 2011 are $386,581 and for 2012 are $432,379.
• The current assets for the year 2011 are $61,886 and for 2012 are $66,645.
• The current liabilities for the year 2011 are $46,755 and for 2012 are $53,773.
• The total liabilities and equity for the year 2011 are 386,581 and for 2012 are $432,379.
• The cash at the beginning and end of the year is $24,046 and $24,255 respectively.
• The accounts receivable for the year 2011 and 2012 is $12,448 and $15,235 respectively.
• The inventory for the year 2011 and 2012 is $25,392 and $27,155 respectively.
• The fixed asset for the year 2011 and 2012 is $324,695 and $365,734 respectively.
• The accounts payable for the year 2011 and 2012 is $23,184 and $27,420 respectively.
• The other current liabilities for the year 2011 and 2012 are $11,571 and $15,553 respectively.
• The notes payable for the year 2011 and 2012 is $12,000 and $10,800 respectively.
• The long-term debt for the year 2011 and 2012 is $80,000 and $95,000.
• The common stock and paid in surplus for 2011 are $40,000 and for 2012 are $40,000.
• The accumulated retained earnings for 2011 are $219,826 and 2012 are $243,606.
• The net income is $43,780.
• The depreciation is $32,220.
• The dividend paid is $20,000.
• The cost of goods sold amounts to $253,122.
• The sales is $366,996.
• The earnings before interest and taxes are $81,654.
• The interest paid is $14,300.
• The retained earnings are $23,780.
• The taxable income is $67,354.

Formula to calculate the Return on assets (ROA):

$\text{ROA}=\frac{\text{Net income}}{\text{Total assets}}$

Compute the Return on assets (ROA):

$\begin{array}{c}\text{ROA}=\frac{\text{Net income}}{\text{Total assets}}\\ =\frac{\$43,780}{\$432,379}\\ =0.1013\end{array}$

Hence, the return on assets is 0.1013 or 10.13%.

n)

Summary Introduction

To find: The financial ratios of Company SG.

Introduction:

The process of analysing and calculating the financial ratios in order to assess the performance of the firm and to find the actions that are necessary to improve the firm’s performance is called the ratio analysis.

Explanation of Solution

Given information:

The balance sheet of the Company SG shows the following information:

• The total assets for the year 2011 are $386,581 and for 2012 are $432,379.
• The current assets for the year 2011 are $61,886 and for 2012 are $66,645.
• The current liabilities for the year 2011 are $46,755 and for 2012 are $53,773.
• The total liabilities and equity for the year 2011 are 386,581 and for 2012 are $432,379.
• The cash at the beginning and end of the year is $24,046 and $24,255 respectively.
• The accounts receivable for the year 2011 and 2012 is $12,448 and $15,235 respectively.
• The inventory for the year 2011 and 2012 is $25,392 and $27,155 respectively.
• The fixed asset for the year 2011 and 2012 is $324,695 and $365,734 respectively.
• The accounts payable for the year 2011 and 2012 is $23,184 and $27,420 respectively.
• The other current liabilities for the year 2011 and 2012 are $11,571 and $15,553 respectively.
• The notes payable for the year 2011 and 2012 is $12,000 and $10,800 respectively.
• The long-term debt for the year 2011 and 2012 is $80,000 and $95,000.
• The common stock and paid in surplus for 2011 are $40,000 and for 2012 are $40,000.
• The accumulated retained earnings for 2011 are $219,826 and 2012 are $243,606.
• The net income is $43,780.
• The depreciation is $32,220.
• The dividend paid is $20,000.
• The cost of goods sold amounts to $253,122.
• The sales is $366,996.
• The earnings before interest and taxes are $81,654.
• The interest paid is $14,300.
• The retained earnings are $23,780.
• The taxable income is $67,354.

Formula to calculate the Return on equity (ROE):

$\text{ROE}=\frac{\text{Net income}}{\text{Total equity}}$

Compute the Return on equity (ROE):

$\begin{array}{c}\text{ROE}=\frac{\text{Net income}}{\text{Total equity}}\\ =\frac{\$43,780}{\$283,606}\\ =0.1544\end{array}$

Hence, the return on equity is 0.1544 or 15.44%.