Arun Company has had poor operating results for the past two years. As the accountant for Arun Company, you have the following information available to you:
- 2010 2009
- Current assets $ 22,500 $ 17,500
- Total assets 72,500 55,000
- Current liabilities 10,000 5,000
- Long-term liabilities 10,000 %u2014
- Owner%u2019s equity 52,500 50,000
- Net sales 131,000 100,000
- Net income 8,000 5,500
Total assets and owner%u2019s equity at the beginning of 2009 were $45,000 and $40,000, respectively. The owner made no investments in 2009 or 2010.
Required:
1. Compute the following measures of liquidity for 2009 and 2010: (a) working capital and (b) current ratio. Comment on the differences between the years.
2. Compute the following measures of profitability for 2009 and 2010:(a) profit margin, (b) asset turnover, (c) return on assets, (d) debt to equity ratio, and (e) return on equity. Comment on the change in performance from 2009 to 2010.