Answer:

(a) Calculate debt ratio:

Debt ratio measure the amount of debt proportionate to total liabilities. Total liabilities include debt as well as equity. The debt ratio will be calculated by dividing the total liabilities with total liabilities and total stockholders. Use the following formula to calculate the debt ratio:

Therefore, debt ratio is 0.6 or 60%.

(b) Calculate debt to equity ratio:

Debt to equity ratio measures the proportion of debt in the capital structure. The debt to equity ratio is calculated by dividing the total debt with the total stockholders' equity. Use the following formula to calculate the debt to equity ratio:

.

Therefore, debt to equity ratio is 1.5 or 150%.

(c) Calculate times interest earned ratio:

Times interest earned measures a long term solvency of a company. This ratio indicates effectiveness of the company in meeting the interest expense over the obligation. The ratio is calculated by dividing the earnings before interest and taxes with the interest expense. Use the following formula to calculate the times interest earned ratio:

Therefore, times interest earned is 6.

Answer:

(a) Calculate return on investment:

Return on investment indicates the performance of the investment. It is very useful to compare with different investments and to select best investment. To calculate return on investment, the benefit from the investment i.e. income or return by the original cost of investment.

For the company of CC,

The company's ROI for the year 2014 are calculated by,

Therefore, return on investment is 7.8%

For the company of PC,

The company's ROI for the year 2014 are calculated by

Therefore, return on investment is 8.9%.

(2) Calculate return on equity:

Return on equity shows the percentage of return earned on the common stock. It is calculated by dividing the net income with common stock.

For the company of CC

The company's ROE for the year 2014 is calculated by,

Therefore, return on equity is 22.3%.

For the company of PC,

The company's ROE for the year 2014 is calculated by:

Therefore, return on equity is 31.3%.

(b)The ROI of CC Company is higher than the ROI of PC Company. However, the ROE of CC Company is lower than the ROE of PC Company. Therefore, the company of PC uses financial leverage more effectively than the other.

(c) Calculate debt and debt/equity ratio:

The debt ratio is calculated as under:

Therefore, debt ratio is 66.8%.

The debt-equity ratio is calculated as under:

The debt-equity ratio is calculated as under:

Therefore, debt/equity ratio is 2.01

For the PC Company,

The debt ratio is calculated as under:

Therefore, Debt ratio is 75.1%.

The debt-equity ratio is calculated as under:

Therefore, debt/equity ratio is 3.02.

(d)The debt ratio of CC Company is lower than the debt ratio of PC Company. Also, the debt/equity ratio of CC Company is lower than the debt/equity ratio of PC Company. It means that the PC Company uses higher debt. Both of them make sense relative to the expectations.

Answer:

(a) Calculate working capital at December 31, 2016:

Working capital measures the firm's ability to meet the current obligations as and when they are due. The working capital is the excess of current assets over current liabilities. The working capital is calculated by deducting the current liabilities from the current assets as shown below:

Therefore, working capital is $80,000.

(b) Calculate current ratio as at December 31, 2016:

Current ratio is a measure to evaluate the liquidity to compare the time between firms. The current ratio is calculated by dividing the current assets with the current liabilities as shown below:

Therefore, current ratio is 3.

(c) Calculate acid-test ratio at December 31, 2016:

Quick ratio is a conservative assessment of the firm's bill paying ability. It excludes inventories and other non-liquid current assets in determining the ratio. Use the following formula to calculate the quick ratio:

Therefore, acid-test ratio is 1.5.