classroom googlecomMTE1MDIOODlyODVaaMTO3Mag2Mz12MaNadetails

classroom google.com//MTE1MDIOODlyODVa/a/MTO3Mag2Mz12MaNa/details Wo CALCULATING FINANCIAL RATIOS (ADVANCED) You are considering investing in Acme Incorporated. The company has provided you with the balance sheet and income statement for the previous year. The current price of one share of stock is $46.25. Earning per share last year was S1.86. 1 Calculate the requested financial ratios: a. Current ratio b. Debt-to-equity ratio c Return on sales (use net income AFTER taxes) d. Return on equity (use net income AFTER taxes) e. Earnings per share (use net income AFTER taxes) 2 Would you invest in Acme Incorporated? Why or why not?

Solution

1.

a. CURRENT RATIO = CURRENT ASSETS / CURRENT LIABILITIES

= $2066586 / $990052

= 2.087

b. DEBT EQUITY RATIO = TOTAL LIABILITIES / SHAREHOLDER\'S EQUITY

= $1628303 / $2232915

= 0.729

c. RETURN ON SALES = NET INCOME AFTER TAX / NET SALES

= $662049 / $4090970

= 0.1618

d. RETURN ON EQUITY = NET INCOME AFTER TAX / SHAREHOLDER\'S EQUITY

= $662049 / $2232915

= 0.296

e. EARNINGS PER SHARE = NET INCOME AFTER TAX / AVERAGE OUTSTANDING SHARES

= $662049 / 342196 SHARES

= $1.9347 PER SHARE