Liquidity and Profitability Ratios

e7A. BuSINESS AppLICATION ▶ A company’s simplified balance sheet and income statement follow.

 

Balance Sheet December 31, 2014

Assets                                                                         Liabilities

 

Current assets	$  50,000	Current liabilities	$  20,000
Investments	10,000	Long-term liabilities	30,000
Property, plant, and equipment	146,500	Total liabilities	$  50,000
Intangible assets	13,500	owner’s equity	Â
Â	Â	Owner’s capital	170,000
Total assets	$220,000	Total liabilities and owner’s equity	$220,000

 

 

Income Statement

For the Year ended December 31, 2014

 

Net sales	$410,000
Cost of goods sold	250,000
Gross margin	$160,000
Operating expenses	135,000
Net income	$  25,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets and owner’s equity at the beginning of 2014 were $180,000 and $140,000, respectively. The owner made no investments or withdrawals during the year.

1.    Compute the following liquidity measures: (a) working capital and (b) current ratio. (Round to one decimal place.)

2.    Compute the following profitability measures: (a) profit margin, (b) asset turnover,

(c) return on assets, (d) debt to equity ratio, and (e) return on equity. (Round to one decimal place.)