# Working Capital, Current Ratio, Acid Test Ratio, Return on Equity and Return on Investment

Analysis of liquidity and profitability measures of Motorola, Inc. The following summarized data (amounts in millions) are taken from the December 31, 1999 and 1998 comparative financial statements of Motorola, Inc., a manufacturer of wireless communication devices, semiconductors, and advanced electronic systems.

a) Calculate Motorola, Inc.'s working capital, current ratio, and acid-test ratio at December 31, 1999, and 1998.

b) Calculate Motorola's ROE for the years ended December 31, 1999, and 1998.

c) Calculate Motorola's ROI, showing margin and turnover, for the years ended
December 31, 1999, and 1998.

d) Evaluate the company's overall liquidity and profitability. Comment specifically on the difficulties you have encountered in evaluating ROI and ROE for 1998.

© SolutionLibrary Inc. solutionlibary.com 9836dcf9d7 https://solutionlibrary.com/math/consumer-mathematics/working-capital-current-ratio-acid-test-ratio-return-on-equity-and-return-on-investment-7f8p

#### Solution Preview

...ities
= 16503 / 12416
= 133%.

Acid-test ratio = (current assets - inventories) / current liabilities
= (16503 - 3422) / 12416
= 105%

b) Calculate Motorola's ROE for the years ended December 31, 1999, and 1998.

1998:

Return on Equity (ROE) Ratio = Net income / Common equity
= -962 / 12222
= -8%
1999:

Return on Equity (ROE) Ratio = Net income / Common equity
= 817 / 16344
= 5%
c) Calculate Motorola's ROI, showing margin and ...