Finance assignment – ratio analysis

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

 

1.6X

 

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

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