TEST OF LIQUIDITY

2090 2089
Current Assets 605,000 519,000
Current Ratio = = =
Current Liabilities 292,000 276,000
= 2.07 to 1 = 1.88 to 1
 The result indicates an increase of current ratio in 2090 which means that the firm becomes
more liquid and its current assets are enough to pay its current liabilities twice.

2090 2089
Quick Asset 375,000 345,000
Acid Test Ratio = = =
Current Liabilities 292,000 276,000
= 1.28 to 1 = 1.25 to 1
 The result indicates that You Corporation has enough liquid assets to pay its current
liabilities.

Receivable Net Credit Asset 3,280,000

= =
Turnover Average Receivable 180,000 + 210,000
2
3,280,000
=
195,000
= 16.82 turnovers
Average Age of No. of Working Days in a Year 360 days
= =
Receivables Receivable Turnover 16.82
= 21.40 days
 The Company could evaluate the performance of the credit and collection of department if
it is satisfactory enough if the average age of receivable is less than the credit terms it
granted. The increase in turnover and a decrease of average age receivable is a good
indicator of the firm's efficiency of collecting it receivables.

Cost of Goods Sold 2,120,000

Inventory Turnover = =
Average Merchandise Inventory 150,000 + 112,000
2
2,120,000
=
131,000
Average Age of No. of Working Days in a Year 360 days
= =
Inventory Inventory Turnover 16.18
= 22.25 days
 The Company can say that it is desirable for them if the turnover is high enough and the
average age of inventory is short.

Current Assets Cost of Sales + Operating Expense 2,120,000 + 770,000

= =
Turnover Average Current Assets 605,000 + 519,000
 2
2,890,000
=
562,000
= 5.14
 The satisfactory of this result must be related to other factors; if the turnover is too high as
compared with the others, it may indicate that the firm's current assets might be
inadequate to meet current operating requirements. On the other hand, a very low
turnover rate means that the firm might be keeping too much current assets for current
operations.
TEST OF SOLVENCY
2090
2090
2090 2089
2089
2089
Debt-equity
Time Income Total Liabilities
beforeTotal
tax + Liabilities
Interest Expense = 360,000 942,000
+ 30,000 = 428,000
742,000 876,000
+ 25,000
876,000
Debt Ratio= = =
Ratio
Interest TotalTotal
Owners' Equity
Assets == 858,000
1,800,000 == 774,000
1,650,000
Earned Interest Expense == 1.1 30,000 == 1.31 25,000
52.33% 53.09%
 The test shows that amount of capital contributed=by the13
2090owners ofand
the creditors
 The result indicates a a little bit of decrease in the percentage times = assets
total are provided
18.12 not
times
2089
equal
 The
by the and the
testcreditor creditors'
indicates aTotal
from contribution
decrease
the Owners'of times
past year to the total
the interest
to 2090, assets
it is good seems
hasforbeen to be
the earned, greater,
lower the but
however it has
thesafer
debt, 774,000
the current
the
Equity 858,000
improved
Equity
resultRatio
company.is in
still 2090.
=
quite high which means that it can= still afford to pay all =
its expenses, including
Total Assets 1,800,000 1,650,000
its interest expense.
= 47.67% = 46.91%
 The result shows an increase of the proportion of owners’ investment in total assets of the
company;if continually increase,a higher ratio is considered to be favourable for the
companies.
TEST OF PROFITABILITY
2090 2089
Income 234,000 278,200
Return on Sales = = =
Net Sales 3,280,000 2,950,000
= 7.13% = 9.43%

2090 2089
Gross Profit 1,160,000 1,033,000
Gross Profit Ratio = = =
Net Sales 3,280,000 2,950,000
= 35.37% = 35.02%

Return on Total Income before Interest and Taxes = 390,000

=
Assets Average Total Assets 1,650,000 + 1,800,000
2
390,000
=
1,725,000
= 23%
 Return on Net Income 234,000
Shareholder = Average Shareholders' = 774,000 + 858,000
s' Equity Equity
2
234,000
=
816,000
= 29%

2090 2089
Earnings per Net Income - Preferred Dividends(if any) 234,000 278,200
= = =
Share Weighted Average Number of Common 100,000 100,000
Shares = 2.34 = 2.78

MARKET TESTS
Price-earning Ratio Price per Share P5
= =
(P/E) Earnings per Share P2.14
= 2.34

Dividend per Share P1

Dividend Yield = =
Price per Share P5
= 20%

Common Dividend Per Share P1

Dividend Payout = =
Earnings per Share P2.14
= 47%