EXERCISE 3-2

Name: Riejare Jhun B. Edullantes Time:10:30-12:00 FS Date: November 04, 2020

Given the balance sheet and income statement for Wilder Company, compute the
ratios below. Once the ratios are being computed, compare the company’s ratio to
the industry average ratio, and determine whether the company’s ratio is
desirable by writing (D) or undesirable by writing (U) on the space provided forf.

Wilder Company
Balance Sheet
Cash P15,000 Accounts Payable P 21,000
Acct. Receivable 22,000 Notes Payable 20,000
Inventory 30,000 Accrued Expenses 5,000

Current Assets 67,000 Current Liabilities 46,000

Net Fixed Assets 73,000 Long-term Debt 30,000

Stockholders’ Equity 64,000

m
er as
Total Liabilities and
Total Assets P140,000 Stockholders’ Equity P140,000

co
eH w
Income Statement

o.
Sales P120,000
rs e
Less: Cost of Goods Sold 45,000
ou urc
Gross Profit 75,000
Selling and Admin. Expenses P20,000
Rent Expense 8,000 28,000
o

EBIT 47,000
Interest Expense 5,000
aC s

Earnings before taxes 42,000

vi y re

Taxes @ 32% 13,440

Net Income P 28,560

Earnings Per Share P 1.90

ed d
ar stu

Ratio Ratios for Wilder Industry Average D or U

Profit Margin 23.8% 17.5% D
Return on Investment 20.4% 20.8% U
Return on Equity 44.63% 35% D
is

Receivable turnover 5.45 4.4 D

Th

Avg. collection period 66.97 68 D

Inventory turnover 1.5 3.5 U
Fixed asset turnover 1.64 2.4 U
Total asset turnover 0.86 .76 D
sh

Current ratio 1.46 1.28 D

Quick ratio 0.80 .85 U
Debt ratio 0.54 .45 U
Time interest earned 9.40 12 U

Solution

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 Profit Margin (Net Income/Net Sales)
28,560/120,000 = 0.238 / 23.80%

Return on Investment (Net Income/Total Investment)

(Liabilities and Stockholders’ Equity)
28,560/140,000 = 0.204 / 20.40%

Return on Equity (Net Income/Stockholders’ Equity)

28,560/64,000 = 0.44625 / 44.63%

Receivable Turnover (Net Sales/Accounts Receivable)

`120,000/22,000 = 5.45 times

Avg. Collection Period (365days/ Acc. Rec. Turnover)

365days/5.45 = 66.97

Inventory Turnover (Cost of Goods Sold/Inventory)

45,000/30,000 = 1.5 times

m
Fixed Asset Turnover (Net Sales/Fixed Assets)

er as
120,000/73,000 = 1.64 times

co
eH w
Total Asset Turnover (Net Sales/Total Asset)
120,000/140,000 = 0.86 times

o.
rs e
Current Ratio (Current Assets/Current Liabilities)
ou urc
67,000/46,000 = 1.46:1

Quick Ratio (Quick Assets [Cash+A/R] /Current Liabilities)

o

15,000+22,000 = 37,000
aC s

37,000/46,000 = 0.80:1
vi y re

Debt Ratio (Total Liabilities [Current and Non-Current]/Total Assets)

46,000+30,000 = 76,000
76,000/140,000 = 0.54 / 54%
ed d

Time Interest Earned

ar stu

(Income before interest expense and income taxes/Interest Expense)

47,000/5,000 = 9.40
is
Th
sh

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