Compute the given ratios for Company UO.
Answer to Problem 13.2CP
Compute the given ratios for Company UO.
Ratio | Formula | Calculation | Result |
Return on Equity (ROE) | 15.38% | ||
Earnings per share (EPS) | As given in income statement | $1.70 | |
Net profit margin | 7.00% | ||
Inventory turnover | 6.42 times | ||
Current ratio | 2.29 times | ||
Debt-to-equity ratio | 0.42 times | ||
Price/Earnings (P/E) ratio | 23.53 times | ||
Dividend yield ratio | 0%% |
Table (1)
Explanation of Solution
Return on equity ratio:
Rate of return on equity ratio is used to determine the relationship between the net income available for the common stockholders’ and the average common equity that is invested in the company.
Return on equity of the Company UO is 15.38 %.
Earnings per share:
Earnings per share help to measure the profitability of a company. Earnings per share are the amount of profit that is allocated to each share of outstanding stock.
Earnings per share of the Company UO is $1.70
Profit margin:
Profit margin ratio is used to determine the percentage of net income that is being generated per dollar of revenue or sales.
Net profit margin of the Company is 7.00 %.
Inventory turnover ratio:
Inventory turnover ratio is used to determine the number of times inventory used or sold during the particular accounting period.
Inventory turnover ratio of the Company UO is 7.46%.
Current ratio is used to determine the relationship between current assets and current liabilities. The ideal current ratio is 2:1.
Current ratio of the Company UO is 2.29 times.
Debt-equity ratio:
The debt-to-equity ratio indicates that the company’s debt as a proportion of its stockholders’ equity.
Debt-to-Equity ratio of the Company UO is 0.42 times.
Price/Earnings Ratio: It depicts the relation of market price of a share to earnings per share of that company. The price/earnings ratio presents the market value of the amount invested to earn $1 by a company. It is major tool to be used by investors before the decisions related to investments in a company.
Price/Earnings ratio of the Company UO is 23.53 times.
Dividend yield: This is the ratio which measures the amount of dividends paid relative to the market price.
Dividend yield ratio of the Company UO is 0%%.
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Chapter 13 Solutions
FINANCIAL ACCOUNTING 9TH
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