Ratio analysis It is the financial analysis tool for measuring the profitability, liquidity, capability and overall performance of a company. Following are the two measures of liquidity: 1. Current ratio : Current ratio is used to determine the relationship between current assets and current liabilities. The ideal current ratio is 2:1. The following formula is used to calculate current ratio. 2. Working capital : Total current assets minus total current liabilities are the working capital of a company. To Compute: The working capital and current ratio as of December 31 for Year 2 and Year 1.

Question

Return on Total Assets A company reports the following income statement and balance sheet information for the current year: Net income $572,580 Interest expense 101,040 Average total assets 6,180,000 Determine the return on total assets. If required, round the answer to one decimal place. %

Answer 1

Question

Chapter 4, Problem 4.3ADM

(A)

To determine

Ratio analysis

It is the financial analysis tool for measuring the profitability, liquidity, capability and overall performance of a company.

Following are the two measures of liquidity:

1. Current ratio: Current ratio is used to determine the relationship between current assets and current liabilities. The ideal current ratio is 2:1. The following formula is used to calculate current ratio.

2. Working capital: Total current assets minus total current liabilities are the working capital of a company.

To Compute: The working capital and current ratio as of December 31 for Year 2 and Year 1.

(B)

To determine

To Explain: The ability of a company to meet its short-term obligations.

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