Section A: Calculations
(1 mark each.)
Analyze the statements below and then answer the questions that follow.
1. What is the Current Ratio for Acme Merchandising Company?
2. What is the Quick Ratio for Acme Merchandising Company?
3. Assuming that all sales are credit sales, what is the Collection Period for Acme Merchandising Company?
4. What is the Inventory Turnover for Acme Merchandising Company?
5. What is the Rate of Return on Sales for Acme Merchandising Company?
6. What is the Rate of Return on Owner's Equity for Acme Merchandising Company?
7. What is the Debt Ratio for Acme Merchandising Company?
8. What is the Times Interest Earned for Acme Merchandising Company?
Section B: Written Response
(4 marks each.)
1. Explain what the Current Ratio is meant to express about a business.
2. What is the primary difference between the Current Ratio and the Quick Ratio? Why should we bother having two ratios that are so similar?
3. What does the Rate of Return on Owner's Equity tell us about a company? Do we want this to be a high rate or a low rate?
4. What does the Inventory Turnover tell us? Do we want this to be a high number, or a low number? Why?
