Problem:
The following items have been pulled from the Income Statement and the Balance Sheet.
Use the data to calculate the ratios below and compare them to the industry.
The ratio is "better" or "worse" is insufficient, tell me why.
Balance Sheet Items Income Statement Items
Inventory 1,000 Sales 15,000
Accounts Receivable 2,000 Credit Sales 13,500
Current Assets 5,000 Cost of goods sold 5,000
Total Assets 10,000
Current Liabilities 3,500
Common Equity 5,500 Net Income 1,800
Industry Avg Compared to the Industry
Acid Test Ratio 1.50
Average Collection Period 48 days
Total Asset Turnover 2.00
Return on equity 25%