Homework Answers
Answer
1 Working capital
Working capital = current assets - current liabilities
2021 working capital = 401,900 - 136,500 = $265,400
2 Current ratio
Current ratio = current assets / current liabilities
Current ratio in 2021 = 401,900 / 136,500 = 2.94 : 1
3 Debt to total assets ratio
Debt to total assets = (total debt / total assets) × 100
Debt includes both long term liabilities and current liabilities.
Debt to total assets ratio
= ( 399,500 / 993,200 ) × 100 = 40.22%
4 Basic earning per share
= income available to common share holders / weighted average number of common shares outstanding
Basic earnings per share = 151,000 / 30,000 = $5.03
5 Price earning ratio
Price earning ratio = market price per share / Basic earnings per share
Price earning ratio
= 35 / 5.03 = 6.96 times
| Working capital | $265,400 |
| Current ratio | 2.94 : 1 |
| Debt to total assets | 40.22% |
| Basic earnings per share | $5.03 |
| Price earning ratio | 6.96 times |
ANALYSIS
1 Liquidity
Liquidity IMPROVED in 2021
Liquidity can be measured by using working capital and current ratio. The current ratio and working capital increase in 2021 compared to year 2020.
2 Solvency
Solvency DECLINED in 2021
The debt to total assets ratio is a measure of solvency. The debt to total assets ratio increased in 2021 compared to 2020. Increase in debt to assets ratio indicate the risk of solvency.
3 profitability
Profitability IMPROVED in 2021
Profitability can be measured by using basic earnings per share. The basic earning per share increased from 2020 to 2021. The increase in basic earnings per share indicates improvement in profitability. In 2020 basic earnings per share is $3.15 and in 2021 basic earnings per share is $6.96.
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