The computation of the ratios for Solomon Company for Year 3 is as follows:
a. Current ratio = 3.94
b. Earnings per share = $17.30
c. Quick (acid) test ratio) = 3.03
d. Return on investment = 7.42%
e. Return on equity = 9.11%
Financial ratios are comparative measurements that show the relationship of numerical values taken from the financial statements.
Financial ratios are used to measure an entity's financial performance, position, and efficiency relative to other entities or the industry.
Some of the most important financial ratios measure an entity's:
SOLOMON COMPANY
Balance sheet
Cash $ 14,600
Marketable securities 8,220
Accounts receivable 12,860
Inventory 10,700 $46,380
Property and equipment 174,000
Accumulated depreciation (12,700 )
Total assets $ 207,680
Accounts payable $ 8,330
Current notes payable 3,440 $11,770
Mortgage payable 4,950
Bonds payable 21,960
Common stock 113,700
Retained earnings 55,300 $169,000
Total liabilities and stockholders’ equity $ 207,680
Outstanding shares = 890
Net Income = $15,400
The computation of the ratios for Solomon Company for Year 3 is as follows:
a. Current ratio = Current assets/Current liabilities
= 3.94 ($46,380/$11,770)
b. Earnings per share = Net income/Outstanding shares
== 17.30 ($15,400/890
c. Quick (acid) test ratio) = Current assets - Inventory/Current liabilities
=3.03 (($46,380 - $10,700)/$11,770)
d. Return on investment = Net Income/Total Assets
= 7.42% ($15,400/$207,680 x 100)
e. Return on equity = Net Income/Total Equity
= 9.11% ($15,400/$169,000 x 100)
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