Based on the financial statements for Jackson Enterprises (income statement, statement of owner's equity, and balance sheet) shown below, prepare the following financial ratios. All sales are credit sales. The Accounts Receivable balance on January 1, 20--, was $21,600. Assume 365 days per year.
Working capital
Current ratio
Quick ratio
Return on owner's equity
Accounts receivable turnover and average number of days required to collect receivables
Inventory turnover and average number of days required to sell inventory
Gdj
To calculate the financial ratios, we will use the information provided in the financial statements of Jackson Enterprises. Let's go step by step to calculate each ratio:
1. Working Capital:
Working capital is the difference between current assets and current liabilities. It represents the company's ability to meet its short-term obligations. Use the balance sheet to find the values for current assets and current liabilities. Then, calculate the working capital using the formula:
Working Capital = Current Assets - Current Liabilities
2. Current Ratio:
The current ratio measures the company's ability to pay off its short-term liabilities with its short-term assets. It is calculated by dividing current assets by current liabilities. Use the balance sheet to find the values for current assets and current liabilities. Then, calculate the current ratio using the formula:
Current Ratio = Current Assets / Current Liabilities
3. Quick Ratio:
The quick ratio, also known as the acid-test ratio, measures the company's ability to pay off its short-term liabilities without relying on inventory. It is calculated by dividing the sum of cash, accounts receivable, and short-term investments by current liabilities. Use the balance sheet to find the values for these accounts and current liabilities. Then, calculate the quick ratio using the formula:
Quick Ratio = (Cash + Accounts Receivable + Short-term Investments) / Current Liabilities
4. Return on Owner's Equity:
Return on Owner's Equity measures the profitability of the company's investment for the owner(s). It is calculated by dividing net income by owner's equity. Use the income statement and statement of owner's equity to find the values. Then, calculate the return on owner's equity using the formula:
Return on Owner's Equity = Net Income / Owner's Equity
5. Accounts Receivable Turnover and Average Number of Days to Collect Receivables:
Accounts Receivable Turnover measures the company's efficiency in collecting its accounts receivable. It is calculated by dividing net credit sales by average accounts receivable. Use the income statement and balance sheet to find the values for net credit sales and average accounts receivable. Then, calculate the accounts receivable turnover using the formula:
Accounts Receivable Turnover = Net Credit Sales / Average Accounts Receivable
To calculate the average number of days to collect receivables, divide 365 by the accounts receivable turnover.
6. Inventory Turnover and Average Number of Days to Sell Inventory:
Inventory Turnover measures the efficiency of a company in managing its inventory. It is calculated by dividing the cost of goods sold by average inventory. Use the income statement and balance sheet to find the values for cost of goods sold and average inventory. Then, calculate the inventory turnover using the formula:
Inventory Turnover = Cost of Goods Sold / Average Inventory
To calculate the average number of days to sell inventory, divide 365 by the inventory turnover.
Remember to gather the necessary information from the provided financial statements to calculate each ratio accurately. Once you have the required data, use the formulas above to calculate each ratio separately.
Based on the financial statements for Jackson Enterprises (income statement, statement of owner’s equity, and balance sheet) shown below, prepare the following financial ratios. All sales are credit sales. The Accounts Receivable balance on January 1, 20--, was $21,600. Assume 365 days per year.
1.Working capital
2.Current ratio
3.Quick ratio
4.Return on owner's equity
5.Accounts receivable turnover and average number of days required to collect receivables
6.Inventory turnover and average number of days required to sell inventory