The balance sheet and other information in the question relate to Colorado Ltd and Columbia Ltd.

1. The income statements for the two companies for the year ended 30 June reveal the following:

2. The totals of certain items as at 1 July 2012 were:

a. Calculate the following ratios for both entities:
i. Current ratio
ii. Quick asset ratio
iii. Inventory turnover
iv. Average collection period for receivables.
b. Assess which entity do you think is the better short-term credit-risk. Why?
c. Calculate the following ratios for both entities (ignore income tax):
i. Return on assets
ii. Return on equity (there were no changes in contributed equity during the year).
d. Assess which entity do you think is the better investment. Why?
e. Determine what other information may be helpful for decision making.

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Balance sheets as at 30 June 2013 Colorado Ltd Columbia Ltd Current assets Cash assets Receivables (net trade) Inventories Other lotal current assets Non-current assets Property, plant and equipment Total non-current assets Total assets Current liabilities Payables Total current liabilities Non-current liabilities Interest-bearing liabilities Total non-current liabilities Total liabilities Equity Contributed equity Retained earnings Total equity Total liabilities and equity $ 22 500 108 000 91 125 2 250 223875 $18000 79 875 64 125 3375 165 375 372 375 372 375 $596 250 313875 313875 $479 250 67 500 67500 90000 90000 135 000 135 000 225000 112500 112 500 180 000 225 000 146 250 371 250 $596 250 225000 74 250 299 250 $479 250 Income (sales revenue) Cost of sales Profit Colorado Ltd $855 000 572 850 65 250 Columbia Ltd $648 000 431 325 38250 Inventories Total assets Retained earnings Trade accounts receivable (net) Colorado Ltd $ 84375 573 750 132 750 99 000 Columbia Ltd $ 57 375 465750 60 750 74250