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FIN 401 Module 1 Assignment 3 Ratio Analysis (100% Score) NEW
FIN 401 Module 1 Assignment 3 Ratio Analysis (100% Score) NEW
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FIN 401 Module 1 Assignment 3 Ratio Analysis (100% Score)

By monday, February 23, 2015 solve the problem below, calculate the ratios, interpret the results against the industry average, and fill in the table on the worksheet. Then, provide an analysis of how those results can be used by the business to improve its performance.

Balance Sheet as of December 31, 2010

Gary and Company

Cash      $45                        Accounts payables          $45

Receivables        66                          Notes payables                 45

Inventory            159                        Other current liabilities 21

Marketable securities    33                          Total current liabilities    $111

Total current assets        $303                                        

Net fixed assets               147                        Long Term Liabilities      

Total Assets        $450                       Long-term debt                24

                                Total Liabilities  $135

                                                 

                                Owners Equity 

                                Common stock  $114

                                Retained earnings           201

                                Total stockholders’ equity            315

                                                Total liabilities and equity             $450

 

Income Statement Year 2010

                 

Net sales             $795

Cost of goods sold           660

Gross profit        135

Selling expenses              73.5

Depreciation      12

EBIT       49.5

Interest expense             4.5

EBT         45

Taxes (40%)        18

Net income        27

 

1. Calculate the following ratios AND interpret the result against the industry average:

Ratio      Your Answer      Industry Average             Your Interpretation

 

(Good-Fair-Low-Poor)

Profit margin on sales                   3%         

Return on assets                             9%         

Receivable turnover                      16X        

Inventory turnover                        10X        

Fixed asset turnover                     2X          

Total asset turnover                      3X          

Current ratio                     2X          

Quick ratio                         1.5X      

Times interest earned                  7X          

 

2. Analysis:

Give your interpretation of what the ratios calculations show and how the business can use this information to improve its performance. Justify all answers.

Highlight your answers. 

Receivable turnover requires the use of credit sales. Since you are not given this number please use the sales figure of 795.

I am pasting the required form for you to complete, as a reminder.  Remember to show me your work. You can put the calculations at the end of your paper. If these are not included I will have to count the answer wrong. 

Ratio      Your Answer      Industry Average             Your Interpretation

(Good-Fair-Low-Poor)

Profit margin on sales                   3%         

Return on assets                             9%         

Receivable turnover                      1.6X      

Inventory turnover                        10X        

Fixed asset turnover                     2X          

Total asset turnover                      3X          

Current ratio                     2X          

Quick ratio                         1.5X      

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