Calculate Four (4) types of ratios are ordinarily calculated: (1) liquidity, (2) leverage. (3) activity, and (4) profitability ratios. Refer: Slide Chapter Controlling Example Table 8-1 Balance Sheet, Sterling B. Chemicals, Inc., December 31, 2012 ASSETS Current assets Cash $150,000 Securities (at cost) 100,000 $250,000 Accounts receivable 400.000 Inventories (at lower cost or market) Raw materials and supplies 200,00) Work in progress 180,000 Finished goods 300,000 680,000 Prepaid expenses 30.000 Total current assets $1.360,000 Property, plant, and equipment 4.500,00) Less accumulated depreciation and depletion 2,400,000 Net property, plant and equipment 2.100.000 Total Assets $3.460.000 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $100,000 Installments due within one year on debt 30,000) Federal income and other taxes 250,00) Other accrued liabilities 120,000) Total current liabilities S500.000 Long-term debit 1.000.000 Total Liabilities $1.500.000 Stockholders' equity Capital stock 500,000) Retained earnings 1.460,00) Total equity 1.960.000 Total Liabilities and Equity $3.460.000 In this example the assets include current assets, inventories, prepaid expenses, and property. It gives Total assets of $3.46 million. Liabilities include accounts payable, installments dae within one year, tax and other accured liabilities. This gives $1.5 million for the total liabilities. The stockholders equity is equivalent to the company's net worth or its assets after subtracting all of its liabilities. In this case, that is $3.460,000 - $1,500,000 - $1,960,000 for total equity. For legal and accounting reasons it is separated ito S500.000 for capital stock and the retained earnings are $1.46 million. Thus, the two balves are always in balance $3,200,000 150,000 $3,050,000 2,000,000 250,000 100,000 200,000 ross sales Less returns and allowances Net sales ess expenses and costs of goods sold Cost of goods sold Depreciation and depletion Selling expenses General and administrative expenses Operating profit Plus interest and other income Gross income Less interest expense ncome before taxes Provision for income taxes et income Eetained earnings January 1, 2012 2.550,000 $500,000 60,000 560,000 20,000 540,000 260,000 280,000 1,500,000 1.780,000 320,000 1.460,000 Dividends paid etained earnings December 31, 2012