(Ratio Computations and Discussion) Costner Company has been operating for several years, and on December 31, 2012, presented the following balance sheet.
|
COSTNER COMPANY |
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|
Cash |
$ 40,000 |
Accounts payable |
$ 70,000 |
|
Receivables |
75,000 |
Mortgage payable |
140,000 |
|
Inventory |
95,000 |
Common stock ($1 par) |
160,000 |
|
Plant assets (net) |
220,000 |
Retained earnings |
60,000 |
|
$430,000 |
$430,000 |
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The net income for 2012 was $25,000. Assume that total assets are the same in 2011 and 2012.
Instructions
Compute each of the following ratios. For each of the four, indicate the manner in which it is computed and its significance as a tool in the analysis of the financial soundness of the company.
(a) Current ratio. (c) Debt to total assets.
(b) Acid test ratio. (d) Rate of return on assets.