Acme Incorporated: Financial Ratio Analysis

Current Ratio 

The current ratio measures AC ME’s liquidity by determining the organization’s ability to settle short-term liability responsibilities. It is calculated through dividing current assets by current liabilities, as illustrated below: 

Current ratio =

ACME current Assets $ 2,066,586 

ACME current liabilities $ 990,052 

Debt-to-Equity (D/E) Ratio 

The ratio measures financial leverage (capital structure) by dividing the total liabilities by the stakeholders’ equity using the formula: 

Debt/ Equity Ratio=

= 0.73 

The D/E ratio shows ACME has a conservative capital structure. 

Return on Sales (ROS) Ratio 

Return on sales ratio (otherwise known as operational profit margin), measures an organization’s operational efficiency. 

ROS=

= 0.16 

Return on Equity (ROE) 

The ROE ratio is used to measure the ability of firms to create returns from the shareholder’s investments using common equity. 

ROE

=

Earnings per Share 

The earnings per share (EPS) is an indicator of an enterprise’s financial health, and it represents an allocation of a firm’s profits to every outstanding share in common stock. 

Decision 

The current ratio (2.07) implies ACME can meet short-term debt obligations with ease. Secondly, the D/E ratio implies that every dollar invested in ACME can generate $ 0.75 cents of revenue. The ROE ratio shows that ACME struggles to generate profit from the shareholders’ investment. However, the low ROE ratio is offset by a very high EPS of 4.86, implying that the company is very profitable. Consequently, investing ACME stocks is less risky and profitable, considering its conservative capital structure. 

Summary of the Ratios 

Ratio Average	ACME Incorporated (Formula and calculations)
Current Ratio	Current ratio =
Debt/Equity Ratio	Debt/ Equity Ratio= = 0.73
Return on Sales	ROS= = 0.16
Return on Equity	ROE =
Earnings per Share
Decision to Invest	The current ratio (2.07) implies ACME can meet short-term debt obligations with ease. Secondly, the D/E ratio implies that every dollar invested in ACME can generate $ 0.75 cents of revenue. The ROE ratio shows that ACME struggles to generate profit from the shareholders’ investment. However, the low ROE ratio is offset by a very high EPS of 4.86, implying that the company is very profitable. Consequently, investing ACME stocks is less risky and profitable, considering its conservative capital structure.