6.14. Some Financial Calculations
To see what kind of financial condition the Putnam Company is expected to be in for the budgeting year, a sample of financial ratio calculations are in order. (Assume 20A after-tax net income was $45,000.)
| Current ratio | 20A | 20B |
|---|---|---|
| (Current assets/current liabilities) | $137,850/$66,275 = 2.08 | $156,425/$66,475 = 2.35 |
| Return on total assets: | ||
| (Net income after taxes/ total assets) | $45,000/$343,850 = 13.08% | $64,375/$388,425 = 16.57% |
Sample calculations indicate that the Putnam Company is expected to have better liquidity as measured by the current ratio. Overall performance will be improved as measured by return on total assets. This could be an indication that the contemplated plan may work out well.
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