BUS-FP3061 - Fundamentals of Accounting Assessment 5, Part 1

BUS-FP3061 - Fundamentals of Accounting Assessment 5, Part 1

Question # 00159492 Posted By: solutionshere Updated on: 12/25/2015 08:54 PM Due on: 01/24/2016
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BUS-FP3061 - Fundamentals of Accounting
Assessment 5, Part 1 Template
Description 2013 Calculations 2013 Answers
Current ratio represents the business’s liquidity and efficiency. It measures the firm’s ability to meet its short-term obligations and long term obligations. The current ratio can also be known as the working capital ratio. Current ratio $215,000/$145,000 = Current Assets/Current Liabilities 1.5:1
Quick ratio measures the business’s ability to meet its current short term obligations with its current assets. The higher ratio means that there were more quick assets to pay off current liabilities. The fund generated by the current liabilities may have been used to pay for long term assets. It may also mean that current assets decreased. Quick ratio $125,000/$145,000 = (current assets – inventories) / current liabilities) 0.862 : 1
Receivables turnover represents the number of times the business was able to turn its accounts receivable into cash over a period. The higher number means that the firm was able to better collect its receivables. Receivables turnover $600,000/$80,000 = Net Credits sales/ average accounts receivable 7.5 times
Inventory turnover represents the efficiency of the business to control its merchandise. It shows how many times a business has sold or replaced something over a time period. The higher number means that the firm does not overspend in inventory. Inventory turnover $415,000/$80,000 = Cost of goods sold/ average inventory 5.2 times
Profit margin represents the percentage of sales left after all the expenses are paid. The higher percentage means that more profits are left.

Profit margin $38,400/$600,000 = Net income/ net sales 6.400%
Asset turnover represents the efficiency of the firm to use its assets to generate sales. The higher number means that the management has been more efficient in generating sales.
The firm may have generated more sales using lower assets.

 Asset turnover $600,000/$599,000 = Net sales/ average total assets 1.002 times
Return on asset represents the net income generated by total assets for a given period. It shows that the firm was able to effectively manage its assets to produce higher income
 Return on assets $38,400/$599,000 = Net income/ Total Assets 6.410%
Return on equity represents the profit generated by each dollar of common stockholder’s equity. The firm may have lowered its expenses while maintain the same shareholder’s equity.
 Return on equity $34,800/$150,000 = Net Income/ stockholder's equity 25.60%
Return on equity represents how much the market will pay for a stock considering its current earnings. It may indicate higher dividends or higher stock value in the future.

 Earnings per share $38,400-$15,400 / 30,000 shares = net income-dividends on preferred stock/average outstanding common shares $0.77
Return on equity represents how much the market will pay for a stock considering its current earnings. It may indicate higher dividends or higher stock value in the future. Price-earnings $19.50/ $0.77 = Market Value price per share/earnings per share 25.32 times
The dividend payout ratio provides an indication of how much money a company is returning to shareholders, versus how much money it is keeping on hand to reinvest in growth, pay off debt or add to cash reserves.
Cash Dividend payout $15,400/$38,400 = Total Dividends/ net income 40.10%
Debt ratio represents a firm’s solvency. It shows how much the business assets must be sold in order to pay liabilities.
 Debt ratio $265,000/$638,000 =Total Debt/ Total assets 41.53%
Debt-to-Equity Ratio is a debt ratio used to measure a company's financial leverage, calculated by dividing a company’s total liabilities by its stockholders' equity. The debt to equity ratio indicates how much debt a company is using to finance its assets relative to the amount of value represented in shareholders’ equity. Debt-to-Equity $265,000/$373,000 - Total liabilities/total equity 71.05%
Debt ratio represents an organization’s creditworthiness. It gauges the amount of net income that can be used to cover interest expense in the future. Times interest earned $64,200/ $7,800 = Income before interest and taxes/ interest expense 8.231 times
Accounting Tools. (2015). Accounting Tools Website. Retrieved from: http://www.accountingtools.com
Investopedia. (2015). Investopedia Website. Retrieved from: http://www.investopedia.com




BUS-FP3061 - Fundamentals of Accounting
Assessment 5, Part 1 Template
Orange Company Orange Company
Income Statement Balance Sheets
For the Years Ended December 31 December 31
2013 2012 2013 2012
Net sales (all on account) $ 600,000 $ 520,000 Assets
Expenses: Current Assets
Cost of Goods Sold $ 415,000 $ 354,000 Cash $ 21,000 $ 18,000
Selling and administrative $ 120,800 $ 114,600 Short-term investments $ 18,000 $ 15,000
Interest Expense $ 7,800 $ 6,000 Accounts Receivable $ 86,000 $ 74,000
Income Tax Expense $ 18,000 $ 14,000 Inventory $ 90,000 $ 70,000
Total expenses $ 561,600 $ 488,600 Total Current Assets $ 215,000 $ 177,000
Net Income $ 38,400 $ 31,400 Plant Assets $ 423,000 $ 383,000
Total Assets $ 638,000 $ 560,000
Additional Data:
1. The common stock recently sold at $19.50 per share. Liabilities and Stockholder's Equity
2. Cash dividends in the amount of $15,400 were paid-out in 2013. Current Liabilities
Accounts Payable $ 122,000 $ 110,000
Income Taxes Payable $ 23,000 $ 20,000
Total Curent Liabilities $ 145,000 $ 130,000
Long-term Liabilities
Bonds Payable $ 120,000 $ 80,000
Total Liabilities $ 265,000 $ 210,000
Stockholder's Equity
Common Stock ($5 par value) $ 150,000 $ 150,000
Retained Earnings $ 223,000 $ 200,000
Total Stockholder's Equity $ 373,000 $ 350,000
Total Liabilities and Stockholder's Equity $ 638,000 $ 560,000
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