Problem: Following are selected account balances for SmallBiz Industries Inc.:
Description Current Year Last Year
Cash $ 10,000 $ 10,000
Accounts Receivable $ 30,000 $ 30, 000
Inventory $ 80, 000 $ 75,000
Prepaid Insurance $ 6,000 $ 5,000
Long-term Assets $ 200,000 $196,000
Accounts Payable $ 30,000 $ 25,000
Notes Payable due in 10 Months $ 25,000 $ 15,000
Wages Payable $ 5,000 $ 5,000
Long-term Liabilities $ 70,000 $ 95,000
Stockholders' (Owner's) Equity $ 196,000 $ 176,000
Sales $ 250,000 $ 240,000
Cost of Sales $ 175,000 $170,000
Net Income $ 20,000 $ 17,000
Required to do:
A. Calculate the following financial ratios for the Current Year:
1 Return on Equity
2 Return on Assets
3 Net Working Capital
4 Current Ratio
5 Liabilities to Equity Ratio
6 Average Collection Period
7 Receivables Turnover
8 Number of Days Sales in Inventory
9 Inventory Turnover
B. Which ratio(s) indicate an opportunity for improvement in financial performance? Why?