Reference no: EM131197629
Calculating and Using Ratios 1. If we divide users of ratios into short-term lenders, long-term lenders, and stockholders, which ratios would each group be most interested in, and for what reasons? 2. Bud’s Big Time Bowling Company has $2,000,000 in assets and $1,400,000 of debt. It reports net income of $200,000. a. A. What is the return on assets? b. B. What is the return on stockholders’ equity? c. C. If the firm has an asset turnover ratio of 2.5 times, what is the profit margin (return on sales)? 3. If the accounts receivable turnover ratio is decreasing, what will be happening to the average collection period? 4. The balance sheet for Robert’s Racket Shop is given below. Sales for the year were $2,400,000, with 90 percent of sales sold on credit. Robert’s Racket Shop Balance Sheet Dec 31, 2011 Assets Liabilities and Equity Cash $ 60,000 Accounts payable $220,000 Accounts receivable 240,000 Accrued taxes 30,000 Inventory 350,000 Bonds payable (long term) 150,000 Plant and equipment 410,000 Common stock 80,000 Paid-in-capital 200,000 Retained earnings 380,000 Total liabilities and equity $1,060,000 Total assets $1,060,000 Compute the following ratios and questions: a. Current ratio. b. Quick ratio. c. Debt-to-total-assets ratio. d. Average collection period. e. Would you loan this company money? Explain. f. The average collection period for Bob’s Billiards in 2009 was 34 days, and in 2010 was 28 days. How does the current collection period compare to these? 5. The Round Rock Stars financial statements show the following information: Year Net Income Total Assets Stockholder’s Equity Total Debt 2008 $118,000 $1,900,000 $700,000 $1,200,000 2009 131,000 1,950,000 950,000 1,000,000 2010 148,000 2,010,000 1,100,000 910,000 2011 175,700 2,050,000 1,420,000 630,000 a) Compute the ratio of return on assets for each year and comment on the trend. b) Compute the ratio of return on equity for each year and comment on the trend. c) Explain why there may be differences in the trends between parts a & b.
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