Waterways Continuing Problem WCP14

(c)
Calculate the following ratios for 2017 and indicate whether the ratio is a liquidity, solvency, or
profitability ratio.

1. Asset Turnover Ratio =(Net Sales /Average Total Assets)

Average total Assets=(3,550,315+2,444,868)/2

=2,997,591.50

Hence Assets Turnover Ratio=(5,536,077/2,997,591.50)

=1.85 times

This is neither an solvency or profitability or liquidity ratio.It is an activity ratio.

2. Receivables turnover Ratio=(Net Credit Sales/Average Accounts Receivable)

Net Credit Sales=(5,536,077*85%)=$4,705,665.45

Average Accounts Receivable=(680750+542685)/2

=$611717.50

Hence Receivables turnover Ratio=(4,705,665.45/611717.50)

=7.70 times

This is neither an solvency or profitability or liquidity ratio.It is an activity ratio.

3. Average Collection Period =(365/Receivables turnover Ratio)

=(365/7.70)

=47.40 days

This is neither an solvency or profitability or liquidity ratio.It is an activity ratio.

4. Current Ratio=Current Assets/Current Liabilities

=(2,313,022/293,658)

=7.88

This is a liquidity ratio.

5. Debt to total assets ratio=Total debt/Total assets

=(433658/3,550,315)

=0.122
This is a solvency ratio.

6. Earnings per share=Net income/Equity shares

=(897368/5000)

=$179.47 per share

This is a profitability ratio.

7. Profit margin ratio=Net Income/Net sales

=(897368/5,536,077)

=0.16

This is a profitability ratio.

8. Return on assets ratio=Net income/Average total assets

=(897368/2,997,591.50)

=30%

This is a profitability ratio.

9. Return on common stockholders’ equity ratio =Net Income/Shareholder's Equity

=(897368/3,116,657)

=28.80%

This is a profitability ratio.

10. Times interest earned ratio=(Income before interest and tax/interest expense)

Income before interest and tax =(1276141+18000)

=$1294141

hence,Times interest earned ratio=(1294141/12187)

=106.20 times

This is a solvency ratio.

The comparative balance sheets of Waterways Corporation’s Irrigation Installation Division for the years 2007 and
2008 and the income statements for the year 2007 and 2008 are presented below. Calculate the following ratios for
2008 and indicate whether the ratio is a liquidity, solvency, or profitability ratio. Comment on your findings.