ABC Company
Income statement Sales R
Sales Rs. 500,000
Cost of goods sold 300,000
Operating expenses 60,000
Interest expenses 10,000
Income tax expenses 40,000
Net income Balance sheet 90,000
Asset
Cash Rs 10,000
Accounts receivable 15,000
Inventory 15,000
Equipment 455,000
Total: Liabillies Rs
Accounts payable Rs 12,000
Long-term notes payable 48,000
Shareholder’s equity:
Capital stock 300,000
Retained earnings 140,000
Total: 500,000
Find and interpret the company’s
(I) Current ratio (ii) Quick ratio (iii) Average collection period
(iv) Time interest earned (v) Inventory turn over
Interpretation: The current ratio of 3.33 indicates that the company has Rs. 3.33 in current assets for every Rs. 1 in current liabilities. This suggests the company is in a strong position to meet its short-term obligations.
Interpretation: A TIE ratio of 14 means the company earns 14 times its interest expense, indicating a strong ability to cover its interest payments.
