Basic Financial Ratios The accounting staff of SST Enterprises has completed the financial statements for the 2008 calendar year. The statement of income for the current year and the comparative statements of financial position for 2008 and 2007 follow.

Required 1. Calculate the following financial ratios for 2008 for SST Enterprises:

a. Times interest earned

b. Return on total assets

c. Return on common stockholders’ equity

d. Debt-equity ratio (at December 31, 2008)

e. Current ratio (at December 31, 2008)

f. Quick (acid-test) ratio (at December 31, 2008)
g. Accounts receivable turnover ratio (Assume that all sales are on credit.)
h. Number of days’ sales in receivables i. Inventory turnover ratio (Assume that all purchases are on credit.)
j. Number of days’ sales in inventory k. Number of days in cash operating cycle 2. Prepare a few brief comments on the overall financial health of SST Enterprises. For each comment, indicate any information that is not provided in the problem and that you would need to fully evaluate the company’s financial health.
(CMA adapted)

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SST Enterprises Statement of Income Year Ended December 31, 2008 (thousands omitted) Revenue: Net sales $600,000 Other 45,000 Total revenue $645,000 Expenses: Cost of goods sold $405,000 Research and development 18,000 Selling and administrative 120,000 Interest 15,000 Total expenses $558,000 Income before income taxes $ 87,000 Income taxes 27,000 Net income $ 60,000