Problem 1: The balance sheet for Stud Clothiers is shown below. Sales for the year were $2,400,000, with 90 percent of sales sold on credit.
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STUD CLOTHIERS
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Balance Sheet 200X
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Assets
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Liabilities and Equity
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Cash
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$ 60,000
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Accounts payable
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$ 220,000
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Accounts receivable
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240,000
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Accrued taxes
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30,000
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Inventory
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350,000
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Bonds payable (long-term)
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150,000
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Plant and equipment
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410,000
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Common stock
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80,000
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Paid-in capital
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200,000
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Retained earnings
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380,000
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Total assets
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$1,060,000
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Total liabilities and equity
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$1,060,000
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Compute the following ratios:
1) Current ratio.
2) Quick ratio.
3) Debt-to-total-assets ratio.
4) Asset turnover.
5) Average collection period.
Problem 2: Company has the following ratios compared to its industry for 2005.
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Acme Transportation
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Industry
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Return on assets
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9%
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6%
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Return on equity
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12%
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24%
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Explain why the return-on-equity ratio is so much less favorable than the return-on-assets ratio compared to the industry. No numbers are necessary; a one-sentence answer is all that is required.