INTRO TO FIN ACCT (LL W/ ACCESS-1 SMSTR
INTRO TO FIN ACCT (LL W/ ACCESS-1 SMSTR
10th Edition
ISBN: 9781264038947
Author: Libby
Publisher: MCG
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Chapter 13, Problem 3P
To determine

Compute the given ratios for the Department H

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Answer to Problem 3P

Ratios of the Department H:

Return on equity298.25%
Return on assets19.73%
Total asset turnover2.31
Inventory turnover5.26
Current ratio1.17
Quick ratio0.34
Cash coverage ratio12.14
Debt-to-equity ratio29.63

Table (1)

Explanation of Solution

Return on Equity:

It is one of the profitability ratios. Return on equity ratio is used to determine the relationship between the net income available for the common stockholders’ and the average common stock. Return on equity is calculated as follows:

Return on equity ratio=NetIncomeAverageTotalStockholder'Equity

Return on assets:

Return on assets is the financial ratio which determines the amount of net income earned by the business with the use of total assets owned by it. It indicates the magnitude of the company’s earnings with relative to its total assets.

 Return on Assets ratio=NetIncomeAverageTotalAssets

Total Asset Turnover ratio:

The total asset turnover ratio is used to measure the performance of the company that is the company using its assets to generate revenue. Total Asset turnover tatio is calculated as follows:

Total Assets turnover ratio=NetSalesRevenueAverageTotalAssets

Inventory turnover ratio:

Inventory turnover ratio is one of the Assets Turnover ratios. This ratio is a financial metric used by a company to quantify the number of times inventory is used or sold during the accounting period. It is calculated as follows:

Inventory turnover ratio = Cost of Goods SoldAverage Inventory

Current ratio:

Current ratio is one of the liquidity ratios, which measures the capacity of the company to meet its short-term obligations using its current assets. The ideal current ratio is 2:1. The following formula is used to calculate current ratio.

Current ratio=CurrentAssetsCurrentLiabilities

Quick Ratio:

It is a ratio used to determine a company’s ability to pay back its current liabilities by liquid assets that are current assets except inventory and prepaid expenses.

Quick Ratio=QuickAssetsCurrentLiabilities

Cash coverage ratio:

This ratio indicates the relationship between the cash flows from operating activities and the interest payments. This ratio is calculated as follows:

Cash coverage ratio =Cash flows from operating activities Interest paid

Debt-equity ratio:

The debt-to-equity ratio indicates that the company’s debt as a proportion of its stockholders’ equity.

Debt-equity ratio=TotalLiabilitiesTotalStockholder'sEquity

Calculate the given ratios:

RatioFormulaCalculationResult
Return on equityNetIncomeAverageTotalStockholder'Equity$8,630($4,333+$1,454)/2298.25%
Return on assetsNetIncomeAverageTotalAssets$8,630($42,996+$44,529)/219.73%
Total asset turnoverNetSalesRevenueAverageTotalAssets$100,904($42,966+$44,529)/22.31
Inventory turnoverCost of Goods SoldAverage Inventory$66,548($12,549+$12,748)/25.26
Current ratioCurrentAssetsCurrentLiabilities$18,933$16,1941.17
Quick ratioQuickAssetsCurrentLiabilities($3,595+$1,952+$0)$16,1940.34
Cash coverage ratioCash flows from operating activities Interest paid$12,031$99112.14
Debt-to-equity ratioTotalLiabilitiesTotalStockholder'sEquity$43,075$1,45429.63

Table (2)

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Chapter 13 Solutions

INTRO TO FIN ACCT (LL W/ ACCESS-1 SMSTR

Ch. 13 - Prob. 11QCh. 13 - 12. Explain how a company’s accounting policy...Ch. 13 - 13. Explain why rapid growth in total sales might...Ch. 13 - 1. A company has total assets of $500,000 and...Ch. 13 - Prob. 2MCQCh. 13 - 3. Which of the following ratios is used to...Ch. 13 - The two components of the return on asset ratio...Ch. 13 - Which of the following ratios is required by...Ch. 13 - 6. A company has quick assets of $300,000 and...Ch. 13 - 7. The inventory turnover ratio for Natural Foods...Ch. 13 - 8. Given the following ratios for four companies,...Ch. 13 - 9. A decrease in selling and administrative...Ch. 13 - 10. A creditor is least likely to use what ratio...Ch. 13 - M13-1 Inferring Financial Information Using...Ch. 13 - Inferring Financial Information Using Component...Ch. 13 - Computing the Return on Equity Ratio Compute the...Ch. 13 - Computing the Return on Asset Ratio Compute the...Ch. 13 - Analyzing the Inventory Turnover Ratio A...Ch. 13 - Prob. 6MECh. 13 - Analyzing Financial Relationships Ramesh Company...Ch. 13 - Prob. 8MECh. 13 - Inferring Financial Information Using a Ratio...Ch. 13 - Analyzing the Impact of Accounting...Ch. 13 - E13-1 Using Financial Information to Identify...Ch. 13 - E13-2 Using Financial Information to Identify...Ch. 13 - E13-2 Using Financial Information to Identify...Ch. 13 - Using Financial Information to Identify...Ch. 13 - Prob. 5ECh. 13 - Matching Each Ratio with Its Computational...Ch. 13 - Computing Turnover Ratios Procter & Gamble is a...Ch. 13 - Computing Turnover Ratios | Sales for the year for...Ch. 13 - Analyzing the Impact of Selected Transactions on...Ch. 13 - Analyzing the Impact of Selected Transactions on...Ch. 13 - Inferring Financial Information from Ratios Dollar...Ch. 13 - Prob. 12ECh. 13 - Prob. 13ECh. 13 - Analyzing Ratios Company X and Company Y are two...Ch. 13 - Analyzing an Investment by Comparing Selected...Ch. 13 - Prob. 3PCh. 13 - Prob. 4PCh. 13 - Prob. 5PCh. 13 - Computing Comparative Financial Statements and ROA...Ch. 13 - Prob. 7PCh. 13 - Analyzing the Impact of Alternative Inventory...Ch. 13 - Prob. 9PCh. 13 - Coca-Cola and PepsiCo are well-known international...Ch. 13 - Prob. 2APCh. 13 - Calculating Profitability, Turnover, Liquidity,...Ch. 13 - Prob. 4APCh. 13 - Prob. 5APCh. 13 - Computing Comparative Financial Statements and ROA...Ch. 13 - Prob. 1CPCh. 13 - Prob. 2CPCh. 13 - Prob. 3CPCh. 13 - Prob. 4CPCh. 13 - Inferring Information from the Two Components of...Ch. 13 - Prob. 6CP
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Financial ratio analysis; Author: The Finance Storyteller;https://www.youtube.com/watch?v=MTq7HuvoGck;License: Standard Youtube License