Interpreting Financial Statements: Ratio Calculations
Oncogene Science, Inc., reported no long term debt in its 1994 financial statements.
The equity section of its balance sheet can be summarized as:
|
1994 |
1993 |
|
|
Total current liabilities |
$ 2,979,555 |
$ 2,460,060 |
|
Total long term liabilities |
405,031 |
109,875 |
|
Total stockholders’ equity |
38,656,314 |
45,044,603 |
|
Total liabilities and equity |
$42,040,900 |
$47,614,538 |
Required
a. Calculate Oncogene’s debt and equity composition ratios (vertical analysis) using the capital composition ratios first introduced in Chapter 3.
b. Using only the information shown above, what does this evidence say, pro and con, about Oncogene’s ability to meet its liabilities? Would this suggest a high or low likelihood of bankruptcy? Why?
c. What other information would you need to assess the firm’s liquidity? Its default risk?