Assignment 3: Ratio Analysis
By the due date assigned 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. Turn in your completed work to the Submissions Area through the end of the day.
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
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.