Liquidity and Profitability Ratios
P7.BuSINESS AppLICATION▶ A summary of data from Pinder Construction Supply Company’s income statements and balance sheets for 2014 and 2013 follows.
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✔ 1b: 2014 current ratio: 2.0 ✔ 2c: 2014 return on assets: 14.8% |
Current assets |
2014 $ 366,000 |
2013 $ 310,000 |
|
Total assets |
2,320,000 |
1,740,000 |
|
|
Current liabilities |
180,000 |
120,000 |
|
|
Long-term liabilities |
800,000 |
580,000 |
|
|
Owner’s equity |
1,340,000 |
1,040,000 |
|
|
Net sales |
4,600,000 |
3,480,000 |
|
|
Net income |
300,000 |
204,000 |
Total assets and owner’s equity at the beginning of 2013 were $1,360,000 and
$840,000, respectively.
ReQUIReD
1. Compute the following liquidity measures for 2013 and 2014: (a) working capital and (b) current ratio. Comment on the differences between the years. (Round to one decimal place.)
2. Compute the following measures of profitability for 2013 and 2014: (a) profit mar- gin, (b) asset turnover, (c) return on assets, (d) debt to equity ratio, and (e) return on equity. Comment on the change in performance from 2013 to 2014. (Round to one decimal place.)
