Intro to Business, Ch 14 Pt 2

Jenny's sporting goods company has the following in his 2017 financial statements: Revenue: $50,000 Net Earnings: $5,000 Assets: • current assets: $5,000 • non-current assets: $20,000 • total assets: $25,000 Liabilities: • current liabilities: $3,000 • long term liabilities: $9,000 • total liabilities: $12,000 Shareholders' Equity: • common stocks: $2,000 • retained earnings: $11,000 • total shareholders' equity: $13,000 Total liabilities and equity: $25,000 What is the current ratio of Jenny's company in 2017?

Equation: Current ratio = total current assets / total current liabilities Solution: Current ratio = $5,000 / $3,000 Current ratio = 1.67

Jenny's sporting goods company has the following in his 2017 financial statements: Revenue: $50,000 Net Earnings: $5,000 Assets: • current assets: $5,000 • non-current assets: $20,000 • total assets: $25,000 Liabilities: • current liabilities: $3,000 • long term liabilities: $9,000 • total liabilities: $12,000 Shareholders' Equity: • common stocks: $2,000 • retained earnings: $11,000 • total shareholders' equity: $13,000 Total liabilities and equity: $25,000 What is the debt to equity ratio?

Equation: Debt to equity ratio = total liabilities / total equity Debt to equity ratio = total liabilities / total shareholders' equity Solution: Debt to equity ratio = $12,000 / $13,000 Debt to equity ratio = 0.92

Joe's Bakery has current liabilities of $15.000, total liabilities of $40.000, current assets of $20,000, total assets of $60,000. The business earned $50,000 after tax in 2021. What is the net working capital?

Equation: Net working capital = total current assets - total current liabilities Solution: Net working capital = $20,000 - $15,000 Net working capital = $5,000

The ratio of net profit to total owners' equity is called return on:

Equity

__________ is arrived at by subtracting current liabilities from current assets.

net working capital

__________ ratios measure the degree and effect of the firm's use of borrowed funds to finance its operations.

debt

Liquidity ratios measure:

short-term financial stability

Three legal forms of businesses are (in the order presented by the textbook):

1) sole proprietorship 2) partnerships 3) corporations

Jason's tutoring service has a debt-to-equity ratio of 120%. This means the business has:

More debt than equity

What is/are the disadvantages of partnerships?

Potential conflicts with the partners