Evaluation ofLong-term Solvency

DEBT RATIO OR DEBT TO ASSET RATIOTotal Liabilities

Total Assets

Measures the proportion of borrowed capital to invested

capital

TL: P 3,25o,oooTL: P 3,250,000

TA: P 5,773,oooTA: P 5,500,00O

0.560.59

DEBT TO EQUITY RATIO Total Liabilities

Stockholder’s Equity

Measures relative amount of resources provided by owners and creditors

L: P 3,25o,ooo

1.29

TSE: P 2,523,000

L: P 3,250,000

TSE: P 2,250,000

1.44

Cash Flows From OperationsTotal Liabilities

CASH FLOWS FROM OPERATIONS TO TOTAL LIABILITIES

510,000

760,000

760,000

3,250,000

=23.4%

TIMES INTEREST EARNEDIncome Before Interest

Expense and Income TaxesInterest Expense

This is the most commonmeasure of a company’s ability

to provide protection for its longterm

creditors. A ratio of lessthan 1.0 is inadequate.

= 4

2,000,000

TIMES PREFERRED DIVIDENDS EARNEDNet Income

Annual Preferred Dividend

510,000

6.8

Evaluation ofOperational Efficiency

GROSS MARGIN RATIO

This measure indicates how much of each sales dollar is left after deducting the cost of goods sold to cover expenses and provide a profit.

2,000,000

= 40%

PROFIT MARGIN RATIO

The profit margin ratio, also called the return on sales ratio or gross profit ratio, is a profitability ratio that measures the amount of net income earned with each dollar of sales generated by comparing the net income and net sales of a company.

2,000,000

= 10.2%

RETURN ON TOTAL ASSETS

The ratio is considered an indicator of how effectively a company is using its assets to generate earnings before contractual obligations must be paid

510000+[250000*(1-32%)] 680000

(5500000+5733000)/2 5636500

10. 2%

RETURN ON OWNER’S EQUITYNet Income

Stockholders' Equity

ASSET TURNOVER RATIONet Sales

Average Total Assets