Ratios

Ratios have been calculated on the requested ratios; they are current ratio, inventory turnover, receivables turnover, total asset turnover, debt/equity, profit margin, return on assets, and return on equity. The calculation has been calculated for current year and two prior years.

Additionally I will include the trends associated with the ratios and explain their significance; the ratios have been calculated within the excel spreadsheets for the income statement as well as the balance sheet.

The solvency ratio which is also known as the liquidity ratios measures the short –term liability of the business. This ratio which is the current ratio includes current liabilities and current assets. When calculating ratios for current liabilities/assets, we measured short solvency and related assets to the claim of short-term creditors. In calculating we took the current assets divided by current liabilities; therefore their current assets are $144,000/total liabilities of $41,000 equals 3.51 ratios, this generally is a high ratio. An overly high ratio is indication that Whisper Corporation is not using assets in a productive manner.

The leverage ratio which measures the extent which the firm has been financed by debt is the debt-equity ratio, return on assets ratio and return on equity ratio. The debt-equity ratio is calculated by total liabilities/stockholders equity; $82,000 divided by stockholders equity of $92,000 equals 0.89. The debt/equity ratio can make an investment appear to be more riskier than it actually is. The result is 0.89; this reveals the percentage of debt that the company is at presently. If the company is in debt more than 40-50% then it would need to take another look at the financial statements and compare itself to other companies in that industry to see if the company is building up financial difficulty. This ratio is also indicates the extent to which the business is reliant on credit money versus owners equity. Return on Assets ratio is calculated by dividing net income (after taxes) by the total assets. This is $8,050/$174,000 with the result of 6.2%. This ratio dictates how efficient the profits are being generated from