This sheet provides the answers to the PRACTICE Problem based on the Rainbow Paint Company Data
The sheet titled "Detail Computations" gives the specific ratio computations.
Ratio
Solution
1 Working capital
$750,000.00
2 Current ratio
2
3 Quick ratio
1
4 Accounts receivable turnover
13.33 Times
5 Number of days' sales in receivables
27.38 Days
6 Inventory turnover
5.67
7 Number of days' sales in inventory
64.41 Days
8 Ratio of fixed assets to long-term liabilities
1.73
9 Ratio of liabilities to stockholders' equity
1.04
10 Number of times interest charges earned
6.19 Times
11 Number of times preferred dividends earned
6.13 Times
12 Ratio of net sales to assets
1.43
13 Rate earned on total assets
6.98%
14 Rate earned on stockholders' equity
13.59%
15 Rate earned on common stockholders' equity
3.93%
16 Earnings per share on common stock
$4.10
17 Price-earnings ratio
6.1
18 Dividends per share of common stock
$0.90
19 Dividend yield
3.60%

Rainbow Paint Co. Comparative Income Statement For the Years Ended Decem
2013
Sales
$5,125,000
Sales returns and allowances
125,000
Net sales
$5,000,000
Cost of goods sold
3,400,000
Gross profit
$1,600,000
Selling expenses
$650,000
Administrative expenses
325,000
Total operating expenses
$975,000
Income from operations
$625,000
Other income
25,000
$650,000
Other expense (interest)
105,000
Income before income tax
$545,000
Income tax expense
300,000
Net income
$245,000
2013
Retained earnings, January 1
$723,000
