Question 2: a. Solvency Ratio = 27.94% Total Net Worth Total Assets $60.245 $215,570 A solvency ratio of 28% is on the low side. In their assets decline in value by 28%, the Gordons would be insolvent. Bad. b. Liquidity ratio= = Liquid Assets Total Current Debts $ 3,570 =1.33 $ 2.675 This ratio indicated the Gordons to pay its short-term debt using current assets so if the ratio is greater than one will be better c. Savings ratio = Cash Surplus Income after tax S 19.548 =28.23% $ 69,248 This ratio indicated that Gordons are performing well with their income. Saving is 28% d. Debt Service ratio =- Monthly loan payments Monthly Gross Income $1,282 =15.38% $8,333 The company has sufficient income to cover the loan payment, the debts are secured The growth of new worth should be continued because the income is sufficient to build better balance sheet in the future. Question 2: a. Solvency Ratio = 27.94% Total Net Worth Total Assets $60.245 $215,570 A solvency ratio of 28% is on the low side. In their assets decline in value by 28%, the Gordons would be insolvent. Bad. b. Liquidity ratio= = Liquid Assets Total Current Debts $ 3,570 =1.33 $ 2.675 This ratio indicated the Gordons to pay its short-term debt using current assets so if the ratio is greater than one will be better c. Savings ratio = Cash Surplus Income after tax S 19.548 =28.23% $ 69,248 This ratio indicated that Gordons are performing well with their income. Saving is 28% d. Debt Service ratio =- Monthly loan payments Monthly Gross Income $1,282 =15.38% $8,333 The company has sufficient income to cover the loan payment, the debts are secured The growth of new worth should be continued because the income is sufficient to build better balance sheet in the future