Question

Answer the following questions:

1. Calculating Liquidity Ratios. SDJ, Inc., has net working capital of $1,410, current liabilities of $5,810, and inventory of $1,315. What is the current ratio? What is the quick ratio?
2. Sustainable Growth. If the Crash Davis Driving School has a 13.1 percent ROE and a 30 percent payout ratio, what is its sustainable growth rate?
3. Total Asset Turnover. Kaleb’s Karate Supply had a profit margin of 10 percent, sales of $21 million, and total assets of $9.5 million. What was total asset turnover?
4. Return on Equity. Xero, Inc., has a total debt ratio of 0.55, total debt of $315,000, and net income of $38,250. What is the company’s return on equity?

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1. Calculating Liquidity Ratios. SDJ, Inc., has net working capital of $1,410, current liabilities of $5,810, and inventory of $1,315. What is the current ratio? What is the quick ratio?

NWC = 1,410 = Current Assets – Current Liabilities = CA - 5,810
=> CA = 1,410 + 5810 = 7,220

Current Ratio = Current Assets/Current Liabilities
= 7,220/ 5,810 = 1.24

Quick Ratio = (Current Assets – Inventory) / Current Liabilities
= (7,220 – 1,315)/ 5,810 = 1.02...

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