Use the following partial financial statement information below to calculate the
ID: 2443950 • Letter: U
Question
Use the following partial financial statement information below to calculate the liquidity and profitability ratios. This information can be used to correctly solve each of the ratios below.Average common shares 10,000Current liabilities$100,000
Capital expenditures$20,000Net income$ 21,000
Cash provided by operations$28,000Net sales$150,000
Common stock dividends paid$5,000Total liabilities$105,000
Current assets$150,000Total assets$175,000
Instructions: Compute the following:
(a) Current ratio.
(b) Working capital.
(c) Earnings per share.
(d) Debt to total assets ratio.
(e) Free Cash Flow
Explanation / Answer
(a) Current Ratio = [Current Assets / Current Liabilities]
Current Assets = $150,000
Current Liabilities = $100,000
Current Ratio = [$150,000 / $100,000]
Current Ratio = 1.5
(b) Working Capital = [Current Assets – Current Liabilities]
Working Capital = [$150,000 - $100,000]
Working Capital = $50,000
(c) Earning per share (EPS) = [Net Income / Average common shares]
Net Income = $21,000
Average common shares = 10,000
EPS = [$21,000 / 10,000]
EPS = $2.1 per share
(d) Debt to total assets ratio = [Total Debt / Total Assets]
Total Debt (or) Total liabilities = $105,000
Total Assets = $175,000
Debt to Total Assets Ratio = [$105,000 / $175,000]
Debt to Total Assets Ratio = 0.60 (or) 60%
(e) Free Cash flows = Net Income + Amortization / Depreciation – Changes in Working Capital – Capital Expenditures
Net Income = $21,000
Changes in Working Capital = $50,000
Capital expenditures = $20,000
FCF = [$21,000 - $50,000 - $20,000]
FCF = -$49,000