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problem: Balance Sheet and Income Statement for Spectrum, Inc.

[A] find out the following 10 financial ratios & provide a one sentence explanation of the analytic use of each ratio test. Demonstrate your formulas and input. Accuracy to two (2) decimal points is sufficient.
[B] Determine how Spectrum's financial performance compares to their Industry for each computed ratio. It is sufficient to rate each ratio as "G"= good, "S" = satisfactory, or "P" = poor.

1

Current ratio

2

2

Acid test ratio

1.06

3

Debt Ratio

0.58

4

Total asset turnover

1.18

5

Inventory Turnover

5.78

6

Operating Income Return on Investment

9.80%

7

Operating profit margin

8.30%

8

Times interest earned

3.93

9

Average collection period*

75 days

10

Return on Equity

12%

Suppose all sales are credit sales

Spectrum, Inc. BALANCE SHEET (000)

Cash

$500

Accounts receivable

1,500

Inventories

500

Current assets

2,500

Net fixed assets

5,000

Total Assets

$7,500.00

 

 

Accounts payable

1,200

Bank note

300

Total current liabilities

1,500

Long term debt

4,000

Common stock

300

Retained earnings

1,700

Total liabilities and owner's equity

$7,500

Spectrum, Inc. INCOME STATEMENT (000)

Net sales

$8,500

Cost of goods sold

3,400

Gross profit

5,100

Operating expenses

2,900

Net operating income

2,200

Interest expense

580

Earnings before taxes

1,620

Income tax (34%)

551

Net income

$1,069

 

 

 

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M920669

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