Chapter 17, Problem 4PSA

To determine

Concept Introduction:

Current ratio:

Current ratio helps in measuring short-term liquidity of a firm. Current ratio is computed on the basis of current assets and current liabilities.

Acid-test ratio:

Acid-test ratio shows the relationship between quick assets and current liabilities. This ratio helps in measuring ability of the company to meet its short-term liabilities with liquid assets.

Gross margin ratio:

Gross margin ratio shows relationship between sales revenue and gross profit. This ratio helps in knowing that how much gross profit margin a business is generating from given amount of sales revenue.

Return on total assets:

Return on total assets is known as profitability measurement which is calculated on the basis of net income and average total assets. This ratio helps in knowing the rate of return on average total assets.

Requirement 1:

Current ratio.

To determine

Concept Introduction:

Current ratio:

Current ratio helps in measuring short-term liquidity of a firm. Current ratio is computed on the basis of current assets and current liabilities.

Acid-test ratio:

Acid-test ratio shows the relationship between quick assets and current liabilities. This ratio helps in measuring ability of the company to meet its short-term liabilities with liquid assets.

Gross margin ratio:

Gross margin ratio shows relationship between sales revenue and gross profit. This ratio helps in knowing that how much gross profit margin a business is generating from given amount of sales revenue.

Return on total assets:

Return on total assets is known as profitability measurement which is calculated on the basis of net income and average total assets. This ratio helps in knowing the rate of return on average total assets.

Requirement 2:

Current and acid-test ratio.

To determine

Concept Introduction:

Current ratio:

Current ratio helps in measuring short-term liquidity of a firm. Current ratio is computed on the basis of current assets and current liabilities.

Acid-test ratio:

Acid-test ratio shows the relationship between quick assets and current liabilities. This ratio helps in measuring ability of the company to meet its short-term liabilities with liquid assets.

Gross margin ratio:

Gross margin ratio shows relationship between sales revenue and gross profit. This ratio helps in knowing that how much gross profit margin a business is generating from given amount of sales revenue.

Return on total assets:

Return on total assets is known as profitability measurement which is calculated on the basis of net income and average total assets. This ratio helps in knowing the rate of return on average total assets.

Requirement 3:

Days' sales uncollected.

To determine

Concept Introduction:

Current ratio:

Current ratio helps in measuring short-term liquidity of a firm. Current ratio is computed on the basis of current assets and current liabilities.

Acid-test ratio:

Acid-test ratio shows the relationship between quick assets and current liabilities. This ratio helps in measuring ability of the company to meet its short-term liabilities with liquid assets.

Gross margin ratio:

Gross margin ratio shows relationship between sales revenue and gross profit. This ratio helps in knowing that how much gross profit margin a business is generating from given amount of sales revenue.

Return on total assets:

Return on total assets is known as profitability measurement which is calculated on the basis of net income and average total assets. This ratio helps in knowing the rate of return on average total assets.

Requirement 4:

Inventory turnover.

To determine

Concept Introduction:

Current ratio:

Current ratio helps in measuring short-term liquidity of a firm. Current ratio is computed on the basis of current assets and current liabilities.

Acid-test ratio:

Acid-test ratio shows the relationship between quick assets and current liabilities. This ratio helps in measuring ability of the company to meet its short-term liabilities with liquid assets.

Gross margin ratio:

Gross margin ratio shows relationship between sales revenue and gross profit. This ratio helps in knowing that how much gross profit margin a business is generating from given amount of sales revenue.

Return on total assets:

Return on total assets is known as profitability measurement which is calculated on the basis of net income and average total assets. This ratio helps in knowing the rate of return on average total assets.

Requirement 5

Days' sales in inventory.

To determine

Concept Introduction:

Current ratio:

Current ratio helps in measuring short-term liquidity of a firm. Current ratio is computed on the basis of current assets and current liabilities.

Acid-test ratio:

Acid-test ratio shows the relationship between quick assets and current liabilities. This ratio helps in measuring ability of the company to meet its short-term liabilities with liquid assets.

Gross margin ratio:

Gross margin ratio shows relationship between sales revenue and gross profit. This ratio helps in knowing that how much gross profit margin a business is generating from given amount of sales revenue.

Return on total assets:

Return on total assets is known as profitability measurement which is calculated on the basis of net income and average total assets. This ratio helps in knowing the rate of return on average total assets.

Requirement 6

Debt-to-equity ratio.

To determine

Concept Introduction:

Current ratio:

Current ratio helps in measuring short-term liquidity of a firm. Current ratio is computed on the basis of current assets and current liabilities.

Acid-test ratio:

Acid-test ratio shows the relationship between quick assets and current liabilities. This ratio helps in measuring ability of the company to meet its short-term liabilities with liquid assets.

Gross margin ratio:

Gross margin ratio shows relationship between sales revenue and gross profit. This ratio helps in knowing that how much gross profit margin a business is generating from given amount of sales revenue.

Return on total assets:

Return on total assets is known as profitability measurement which is calculated on the basis of net income and average total assets. This ratio helps in knowing the rate of return on average total assets.

Requirement 7

Times interest earned.

To determine

Concept Introduction:

Current ratio:

Current ratio helps in measuring short-term liquidity of a firm. Current ratio is computed on the basis of current assets and current liabilities.

Acid-test ratio:

Acid-test ratio shows the relationship between quick assets and current liabilities. This ratio helps in measuring ability of the company to meet its short-term liabilities with liquid assets.

Gross margin ratio:

Gross margin ratio shows relationship between sales revenue and gross profit. This ratio helps in knowing that how much gross profit margin a business is generating from given amount of sales revenue.

Return on total assets:

Return on total assets is known as profitability measurement which is calculated on the basis of net income and average total assets. This ratio helps in knowing the rate of return on average total assets.

Requirement 8

Profit margin ratio.

To determine

Concept Introduction:

Current ratio:

Current ratio helps in measuring short-term liquidity of a firm. Current ratio is computed on the basis of current assets and current liabilities.

Acid-test ratio:

Acid-test ratio shows the relationship between quick assets and current liabilities. This ratio helps in measuring ability of the company to meet its short-term liabilities with liquid assets.

Gross margin ratio:

Gross margin ratio shows relationship between sales revenue and gross profit. This ratio helps in knowing that how much gross profit margin a business is generating from given amount of sales revenue.

Return on total assets:

Return on total assets is known as profitability measurement which is calculated on the basis of net income and average total assets. This ratio helps in knowing the rate of return on average total assets.

Requirement 9

Total assets turnover.

To determine

Concept Introduction:

Current ratio:

Current ratio helps in measuring short-term liquidity of a firm. Current ratio is computed on the basis of current assets and current liabilities.

Acid-test ratio:

Acid-test ratio shows the relationship between quick assets and current liabilities. This ratio helps in measuring ability of the company to meet its short-term liabilities with liquid assets.

Gross margin ratio:

Gross margin ratio shows relationship between sales revenue and gross profit. This ratio helps in knowing that how much gross profit margin a business is generating from given amount of sales revenue.

Return on total assets:

Return on total assets is known as profitability measurement which is calculated on the basis of net income and average total assets. This ratio helps in knowing the rate of return on average total assets.

Requirement 10

Return on total assets.

To determine

Concept Introduction:

Current ratio:

Current ratio helps in measuring short-term liquidity of a firm. Current ratio is computed on the basis of current assets and current liabilities.

Acid-test ratio:

Acid-test ratio shows the relationship between quick assets and current liabilities. This ratio helps in measuring ability of the company to meet its short-term liabilities with liquid assets.

Gross margin ratio:

Gross margin ratio shows relationship between sales revenue and gross profit. This ratio helps in knowing that how much gross profit margin a business is generating from given amount of sales revenue.

Return on total assets:

Return on total assets is known as profitability measurement which is calculated on the basis of net income and average total assets. This ratio helps in knowing the rate of return on average total assets.

Requirement 11

Return on common stockholders' equity.