Chapter IE, Problem 18IE

1a.

To determine

The difference between the current assets and current liabilities of the company is represented by working capital, also known as net working capital. It is a metric that measures a company's liquidity and short-term financial health. A company with positive working capital can fund its current operations while also investing in future activities and growth.

Working capital

2a.

To determine

The relationship between net credit sales and average accounts receivable balance is established by accounts receivable turnover. It assesses how effectively a company collects revenue or uses its assets.

Accounts receivable turnover

3a.

To determine

Times interest earned ratio indicates how many times the interest charges are covered by the profits available to pay interest charges. A high times interest earned ratio usually indicates that a company is performing well and is less risky, and vice versa.

Time interest earned ratio

4a.

To determine

The relationship between net income and net sales is established by the net profit margin ratio. It displays the net income earned as a percentage of net sales. Investors can use the net profit margin ratio to compare the performance of the company among competitors.

Net profit margin percentage

5.

To determine

Ratio analysis is a tool for determining the relationship between various items. It is used to assess a company's financial performance using values from the income statement, balance sheet, statement of cash flows, and so on.

The preference of the management.