Also indicate how the firm
finances its assets using a
debt and equity
Address the question : Has
the firm earned adequate
returns on its investments

14

15
Find the following financial ratios for Smolira Golf Corp.
(use year-end
figures rather than average values where appropriate):

16
Short-term solvency ratios:
a. Current ratio
= Current assets / Current liabilities
Current ratio 2008 = $56,260 / $38,963 = 1.44 times
Current ratio 2009 = $60,550 / $43,235 = 1.40 times
b. Quick ratio
= (Current assets
–
Inventory) / Current liabilities
Quick ratio 2008
= ($56,260
–
23,084) / $38,963 = 0.85 times
Quick ratio 2009
= ($60,550
–
24,650) / $43,235 = 0.83 times
c. Cash ratio
= Cash / Current liabilities
Cash ratio 2008
= $21,860 / $38,963 = 0.56 times
Cash ratio 2009
= $22,050 / $43,235 = 0.51 times
Asset
utilization ratios: 2009
d. Total asset turnover = Sales / Total assets
Total asset turnover
= $305,830 / $321,075 = 0.95 times
e. Inventory turnover = Cost of goods sold / Inventory
Inventory turnover = $210,935 / $24,650 = 8.56 times
f. Receivables turnover= Sales / Accounts receivable
Receivables turnover = $305,830 / $13,850 = 22.08 times
In the final exam, unless
otherwise stated, to
calculate the turnover ratios,
please use average figures
in the denominators.

17
Long-term solvency ratios:
g. Total debt ratio
= (Total assets
–
Total equity) / Total assets
Total debt ratio 2008
= ($290,328
–
176,365) / $290,328 = 0.39
Total debt ratio 2009
= ($321,075
–
192,840) / $321,075 = 0.40
h. Debt-equity ratio
= Total debt / Total equity
Debt-equity ratio 2008
= ($38,963 + 75,000) / $176,365 = 0.65
Debt-equity ratio 2009
= ($43,235 + 85,000) / $192,840 = 0.66
i. Equity multiplier
= 1 + D/E
Equity multiplier 2008
= 1 + 0.65 = 1.65
Equity multiplier 2009
= 1 + 0.66 = 1.66
j. Times interest earned
= EBIT / Interest
Times interest earned
= $68,045 / $11,930 = 5.70 times
k. Cash coverage ratio
= (EBIT + Depreciation) / Interest
Cash coverage ratio
= ($68,045 + 26,850) / $11,930 = 7.95 times
Profitability ratios: 2009
l. Profit margin
= Net income / Sales
Profit margin
= $36,475 / $305,830 = 0.1193 or 11.93%
m. Return on assets
= Net income / Total assets
Return on assets
= $36,475 / $321,075 = 0.1136 or 11.36%
n. Return on equity
= Net income / Total equity
Return on equity
= $36,475 / $192,840 = 0.1891 or 18.91%