Question

use the following financial information from the waterwing company to calculate: (a) inventory turnover, (b) current ratio, (c) return on owners equity, and (d) return on investment. (hints - use division and answers are in ratio or percentages)
revenue from sales $600,000
cost of goods sold 320,000
net profit 25,000
current assets 36,000
total assets 200,000
current liabilities 15,000
owners equity 150,000
average inventory 20,000

Explanation:

Part (a): Inventory Turnover

Step1: Recall the formula for inventory turnover.

Inventory Turnover = $\frac{\text{Cost of Goods Sold}}{\text{Average Inventory}}$

Step2: Substitute the given values.

Cost of Goods Sold = $320,000$, Average Inventory = $20,000$
Inventory Turnover = $\frac{320,000}{20,000}$ = 16

Part (b): Current Ratio

Step1: Recall the formula for current ratio.

Current Ratio = $\frac{\text{Current Assets}}{\text{Current Liabilities}}$

Step2: Substitute the given values.

Current Assets = $36,000$, Current Liabilities = $15,000$
Current Ratio = $\frac{36,000}{15,000}$ = 2.4

Part (c): Return on Owners’ Equity

Step1: Recall the formula for return on owners’ equity.

Return on Owners’ Equity = $\frac{\text{Net Profit}}{\text{Owners' Equity}} \times 100\%$ (to express as a percentage)

Step2: Substitute the given values.

Net Profit = $25,000$, Owners’ Equity = $150,000$
Return on Owners’ Equity = $\frac{25,000}{150,000} \times 100\% \approx 16.67\%$

Part (d): Return on Investment (Return on Total Assets)

Answer:

s:
(a) Inventory Turnover: $\boldsymbol{16}$
(b) Current Ratio: $\boldsymbol{2.4}$
(c) Return on Owners’ Equity: $\boldsymbol{16.67\%}$ (or $\frac{1}{6} \approx 16.67\%$)
(d) Return on Investment: $\boldsymbol{12.5\%}$