Question

8. Use the information below about an example company to calculate the financial ratios below.

Answer 1

Given:
Net profit before tax = $208,000
Total equity = $500,000
Total assets = $330,000
Total liabilities = $150,000
Current assets = $64,000
Current liabilities= $45,000

Return on Equity = Net Income / Shareholder's equity = 208,000 / 500,000 = 0.416 or 41.6%.

Return on Assets = Net Income / Total Assets = 208,000 / 330,000 = 0.63 or 63%

Debt ratio = Total Liabilities / Total Assets = 150,000 / 330,000 = 0.4545 or 45.45%

Debt to equity ratio = Total liabilities / Total Equity = 150,000 / 500,000 = 0.30 or 30%

Current ratio = Current Assets / Current Liabilities = 64,000 / 45,000 = 1.42