Based on the financial statements for Jackson Enterprises (income statement, statement of owner’s equity, and balance sheet) shown below, prepare the following financial ratios. All sales are credit sales. The Accounts Receivable balance on January 1, 20--, was $21,600. Assume 365 days per year.
1.Working capital
2.Current ratio
3.Quick ratio
4.Return on owner's equity
5.Accounts receivable turnover and average number of days required to collect receivables
6.Inventory turnover and average number of days required to sell inventory
To prepare the requested financial ratios, we need access to the financial statements of Jackson Enterprises. However, since the statements are not provided in the question, I am unable to calculate the ratios directly for you. Nevertheless, I can explain how to calculate each of the ratios so that you can do it yourself using the information from the financial statements.
1. Working Capital:
Working capital is calculated by subtracting current liabilities from current assets. The formula is:
Working Capital = Current Assets - Current Liabilities
2. Current Ratio:
The current ratio measures the company's ability to pay off its short-term liabilities with its short-term assets. The formula is:
Current Ratio = Current Assets / Current Liabilities
3. Quick Ratio:
The quick ratio, also known as the acid-test ratio, is a stricter measure of a company's ability to pay off its short-term liabilities. It excludes inventory from current assets since it may not be easily converted to cash. The formula is:
Quick Ratio = (Current Assets - Inventory) / Current Liabilities
4. Return on Owner's Equity:
Return on Owner's Equity measures the profitability of the owner's investment. The formula is:
Return on Owner's Equity = Net Income / Owner's Equity
5. Accounts Receivable Turnover and Average Number of Days to Collect Receivables:
Accounts Receivable Turnover measures the company's efficiency in collecting payments from customers. It is calculated using the formula:
Accounts Receivable Turnover = Net Credit Sales / Average Accounts Receivable
The average number of days to collect receivables can be calculated by dividing 365 days by the accounts receivable turnover.
6. Inventory Turnover and Average Number of Days to Sell Inventory:
Inventory Turnover measures how efficiently a company manages its inventory. The formula is:
Inventory Turnover = Cost of Goods Sold / Average Inventory
The average number of days to sell inventory can be calculated by dividing 365 days by the inventory turnover ratio.
Please provide the specific values from the financial statements, and I can assist you in calculating the ratios based on that information.