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
total assets $450
Long term liabilities
long term debt 24
total liabilities $135
Owner's equity
Common stock $114
Retained earnings 201
total stockholder's 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
taxes(40%) 18
Net income 27
Requirement 1. Calculate the following ratios and interpret the result against the industry average:
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
Requirement 2. Give your interpretation of what the ratios calculations show and how the business can use this information to improve its performance. Justify all answers.