See the Balance Sheet and Income Statement for Paul's Guitar Shop. Go to the PPT (slide 19) we covered in class and calculate:

a) Any liquidity ratio

b) Any profitability ratio

Show your work!

Slide 19 -

income statement -

Balance sheet -

Analyze Your Pro Forma Statements EXAMPLES OF KEY FINANCIAL RATIOS LIQUIDITY RATIOS 1. Current Ratio = Current Assets/Current Liabilities 2. Quick Ratio = (Current Assets Inventories)/Current Liabilities PROFITABILITY RATIOS 1. Gross Margin Ratio = Gross Profit Margin/Net Sales 2. Net Profit Ratio = Net Profit before Taxes/Net Sales 3. Return on Assets = Net Profit before Taxes/Total Assets 4. Return on Owner Investment = Net Profit before Taxes/Net Worth LEVERAGE RATIOS 1. Times Interest Earned Ratio = Net Income before Interest and Taxes/Interest Expense 2. Debt-to-Equity Ratio = Long-Term Liabilities/Net Worth Paul's Guitar Shop, Inc. Income Statement For the Year Ended December 31, 2015 Revenues Merchandise Sales $ 24,800 3,000 Music Lesson Income Total Revenues: $ 27,800 Expenses Cost of Goods Sold 10,200 Depreciation expense 2,000 Wage expense 750 Rent expense 500 Interest expense 500 Supplies expense 500 Utilities expense 400 Total Expenses: 14,850 Net Income $ 12,950 Paul's Guitar Shop, Inc. Balance Sheet December 31, 2015 Assets Current Assets Cash Accounts Receivable Prepaid Rent Inventory Total Current Assets Long-term Assets Leasehold Improvements Accumulated Depreciation Total Long-term Assets Total Assets: 32,800 300 1,000 39,800 73,900 100,000 (2,000) 98,000 98,000 171,900 Liabilities Current Liabilities Accounts Payable Accrued Expenses Unearned Revenue Total Current Liabilities Long-term Liabilities Total Liabilities 49,000 450 1,000 50,450 99,500 149,950 Owner's Equity Owner's Equity Retained Earnings Common Stock Total Owner's Equity Total Liabilities and Owner's Equity 11,950 10,000 21,950 171.900