Question

From the Balance Sheet and Income Statement Information below, calculate the following ratios:
[a.] Return on Sales
[b.] Current Ratio
[c.] Inventory Turnover – If there are no beginning inventory or ending inventory figures, then use the Merchandise Inventory figure.

ABC INC. Income Statement Year Ended December 31, 2018
Net Sales Revenue $20,941
Cost of Goods Sold 7,055
Gross Profit 13,886
Operating Expenses 7,065
Operating Income 6,821
Interest Expense 210
Income Before Taxes 6,611
Income Tax Expense 2,563
Net Income $4,048

ABC INC. Balance Sheet December 31, 2018 Assets
Current Assets
Cash $2,450
Accounts Receivable 1,813
Merchandise Inventory 1,324
Prepaid Expenses 1,709
Total Current Assets 7,296
Long-Term Assets 18,500
Total Assets $25,796

Liabilities
Current Liabilities $7,320
Long-Term Liabilities 4,798
Total Liabilities 12,028

Stockholders’ Equity
Common Stock 6,568
Retained Earnings 7,200
Total Stockholders’ Equity 13,768
Total Liabilities & Stockholders’ Equity $25,796

1. NOTES: 1- Round up
2- Your responses should be in the following formats

a. XX% b. x.xx c. x.xx

Answer 1

Answer:

a)   32.57%

b)   0.9967

c)   5.3285 times.

Step-by-step explanation:

a. Return on sales is a simple ratio that is calculated by dividing the operating profit/income  by the net sales revenue.

-Given net sales revenue is $20,941 and the operating income is $6,821:

$Return \ on \ sales(ROS)=\frac{Operating \ Income}{Net \ Sales \ Revenue}\\\\=\frac{6821}{20941}\\\\=0.3257\\\\=32.57\%$

Hence, the return on sales is 32.57%

b. Current ratio is a simple ratio that compares the current assets to the current liabilities.

-Given that current assets=$7,296 and current liabilities=$7,320, the current ratio is calculated as below:

$Current \ Ratio=\frac{Current \ Assets}{Current \ Liabilities}\\\\=\frac{7296}{7320}\\\\=0.9967$

Hence, the current ratio is 0.9967

c. Inventory turnover is a measure of the frequency with which a company's goods is used or sold and subsequently restocked in given period.

-It's calculated by dividing the cost of goods sold by the average invenory as below:

$Inventory \ Turnover=\frac{Cost \ of \ goods \ sold}{mean \ Invenory}\\\\\\=\frac{7055}{1324}\\\\=5.3285\ times$

Hence, the inventory turnover is 5.3285 times.