# ACC 205 Week 5 Assignment Financial Ratios

## ACC 205 Week 5 Assignment Financial Ratios

ACC 205 Week 5 Assignment Financial Ratios

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Description

Financial Ratios. Please complete each of the exercises below in a word document. Save the document,

and submit it in the appropriate week using the Assignment Submission button.

1. Liquidity Ratios. Edison, Stagg, and Thornton have the following financial information at the close of business on July 10:

Edison Stagg Thornton

Cash \$6,000 \$5,000 \$4,000

Short-term investments 3,000 2,500 2,000

Accounts receivable 2,000 2,500 3,000

Inventory 1,000 2,500 4,000

Prepaid expenses 800 800 800

Accounts payable 200 200 200

Notes payable: short-term 3,100 3,100 3,100

Accrued payables 300 300 300

Long-term liabilities 3,800 3,800 3,800

Instructions

a. Compute the current and quick ratios for each of the three companies. (Round calculations to two

decimal places.) Which firm is the most liquid? Why?

2. Computation and evaluation of activity ratios. The following data relate to Alaska Products, Inc.:

20X5 20X4

Net credit sales \$832,000 \$760,000

Cost of goods sold 530,000 400,000

Cash, Dec. 31 125,000 110,000

Accounts receivable, Dec. 31 205,000 156,000

Average Inventory, Dec. 31 70,000 50,000

Accounts payable, Dec. 31 115,000 108,000

Instructions

a. Compute the accounts receivable and inventory turnover ratios for 20X5. Alaska rounds all

calculations to two decimal places

3. Profitability ratios, trading on the equity

Digital Relay has both preferred and common stock outstanding. The company reported the following

information for 20X7:

Net sales \$1,750,000

Interest expense 120,000

Income tax expense 80,000

Preferred dividends 25,000

Net income 130,000

Average assets 1,200,000

Average common stockholders' equity 500,000

Instructions

a. Compute the gross profit margin ratio, the return on equity and...