Table 1

Smith Company Balance Sheet

Assets: Liabilities:

Cash and marketable securities $600,000 Accounts payable $240,000

Accounts receivable 2,215,000 Notes payable 825,000

Inventories 1,837,500 Accrued taxes 42,500

Prepaid expenses 24,000 Total current liabilities $1,107,000

Total current assets $3,586,500 Long-term debt 1,275,000

Fixed assets 2,700,000 Owner's equity (50,000 shares) 2,817,000

Less: accumulated depreciation 1,087,500

Net fixed assets $1,912,500

Total assets $5,199,000 Total liabilities & owner's equity $5,199,000

Table 2

Smith Company Income Statement Other Information

Net sales (all credit) $6,375,000 The common shares are trading in

Less: Cost of goods sold 4,312,500 the stock market for $125 each.

Selling and administrative expense 1,387,500

Depreciation expense 135,000

Interest expense 127,000

Earnings before taxes $412,500

Income taxes 225,000

Net income $187,500

Common stock dividends $97,500

Change in retained earnings $90,000

A.) Based on the information in Table 1, the current ratio is:

B.) Based on the information in Table 2, the net profit margin is:

C.) What is the P/E ratio? What does a high P/E ratio indicate?

(5 pts) What is the return on equity? Assume that the retained earnings have not been added to the equity account