Financial Ratios Formulas

Net income
1. Profit Margin=
Sales

Net income
2. Return on Assets=
Total assets

Net income
3. Return on equity =
Stockholder s ' equity

Sales (credit)
4. Receivables Turnover=
Accounts receivable

Accountsreceivable
5. Average collection period=
Avg . daily credit sales

Sales
6. Inventory turnover =
Inventory

Sales
7. ¿ asset turnover=
¿ assets

Sales
8. Total asset turnover=
Total Assets

Current assets
9. Current ratio=
Current liabilities

Current assets−Inventory
10. Quick ratio=
Current liabilities
 Total debt
11. Debt ¿ total assets=
Total assets
Income before interest∧taxes
12. ¿ interest earned =
Interest

¿
13. ¿ charge coverage =Income before ¿ charges∧taxes ¿ charges

Class exercises
Income Statement
Year 2020
1. Carrier Corporation
Sales $ 500,000.00
Cost of good sold $ 300,000.00
Gross profit $ 200,000.00
Selling and administrative expenses $ 51,000.00
Depreciation $ 39,000.00
Operating profit $ 110,000.00
Interest expense $ 13,100.00
Earning before taxes $ 96,900.00
Taxes (30%) $ 29,070.00
Earning after taxes $ 67,830.00
Preferred stock dividends $ 3,000.00
EACST $ 64,830.00
Shares outstanding $ 20,000.00
Earning per share 3.2415

2. Statment of Retained Earnings

Year 2020
Carrier Corporation
Retained earnings from previous year $ 118,000.00
(+) Net profit 2020 $ 64,830.00
(-) Common dividends / Cash dividends $ 4,500.00
Retained earnings from current year $ 178,330.00
 Balance Sheet
Year 2020
Carrier Corporation
Current Assets Liabilities
Cash $ 24,000.00 Account Payable $ 32,500.00
Account Receivable $ 24,000.00 Notes Payable $ 45,000.00
Inventory $ 35,000.00 Bonds Payable $ 63,800.00
Prepaid Expenses $ 20,000.00
Fixed Assets Stockholders Equity
Plant and Equipment $ 450,000.00 Common Stock $ 84,700.00
Less = Accumulated Depreciation $ 119,000.00 Paid in Capital $ 29,670.00
Retained Earnings $ 178,330.00
Total Assets $ 434,000.00 Total Liabilities and SE $ 434,000.00

3.

Garner Corp
4. Income Statement
Year 2020
Sales 330,000
Cost of good sold 60% 198,000
Gross profit 132,000 40%
Selling & adm. exp. 33,000
Depreciation expense -
Operating profit 99,000 30%
Interest expense -
Earnings before taxes 99,000
Taxes 19,800
Earnings after taxes 79,200
Preferres stock dividens 2,000
Net income 77,200 23%
Shares outstanding 10,000
Earning per share 7.72
 Garner Corp
5. Statement of Retained Earnings
Year 2020
Retained earnings from previous year $ 118,000.00
Net income from current year $ 37,600.00
Cash or common dividens $ 4,100.00
Retained earnings from current year $ 151,500.00

Garner Corp
Statement of Retained Earnings
Year 2020
Current Assets Current Liabilities
Cash $ 15,000.00 Accounts payable $ 26,000.00
Accounts receivable $ 27,000.00 Notes payable $ 40,000.00
Inventory $ 45,000.00
Prepaid expenses $ 18,000.00 Non Current Liabilities
Total Current Assets $ 105,000.00 Bonds payable $ 60,000.00

Fixed Assets Total Liabilities $ 126,000.00

Plant and equipment $ 435,000.00
Accumulated depreciation $ 112,500.00 Stockholders Equity
Net plant and assets $ 322,500.00 Common stock $ 112,500.00
Total fixed assets $ 322,500.00 Paid in capital $ 37,500.00
Retained Earnings $ 151,500.00
Total Assets $ 427,500.00 Total Stockholders Equity $ 301,500.00
Total Liabilities & SH. E. $ 427,500.00

6.