(14) 3. Describe and illustrate how to use financial statement analysis to assess liquidity. (1-4) 4. Describe and illustrate how to use financial statement analysis to assess solvency. (5-8)

The formula used to calculate the accounts receivable turnover is

Sales ÷ Average Accounts Receivable.

Sometimes called the coverage ratio, this ratio measures the risk that interest payments will not be made if earnings decrease.

Times interest earned ratio

The numerator in the calculation of the ratio of liabilities to stockholders' equity is

Total Liabilities.

Which of the following is not a quick asset?

Inventories

Given the following information, what is the ratio of liabilities to stockholders' equity? Fixed assets (net) at year-end $400,000 Average fixed assets 450,000 Total assets 500,000 Long-term liabilities 300,000 Total liabilities 350,000 Total stockholders' equity 250,000 Total liabilities and S/E 500,000 Interest expense 5,000 Income before income tax 150,000 Net income 100,000

$350,000 ÷ $250,000 = 1.4

Based on the following data for the current year, what is the accounts receivable turnover? Sales on account during year $500,000 Cost of goods sold during year 400,000 Accounts receivable, beginning of year 45,000 Accounts receivable, end of year 35,000 Inventory, beginning of year 90,000 Inventory, end of year 110,000

$500,000 ÷ [($45,000 + $35,000) ÷ 2] = 12.5

The times interest earned ratio is computed as

(Income before Income Tax + Interest Expense) ÷ Interest Expense.

The formula used to calculate inventory turnover is

Cost of Goods Sold ÷ Average Inventory.