Finance: Ratio Analysis

User Generated

rirg90

Business Finance

Description

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.


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.


Unformatted Attachment Preview

66 Balance Sheet as of December 31, 2010 Gary and Company Cash $45 Accounts payables Receivables Notes payables Inventory 159 Other current liabilities Marketable securities 33 Total current liabilities Total current assets $303 Net fixed assets 147 Long Term Liabilities Total Assets $450 Long-term debt Total Liabilities $45 45 21 $111 24 $135 Owners Equity Common stock Retained earnings Total stockholders' equity Total liabilities and equity $114 201 315 $450 66 Balance Sheet as of December 31, 2010 Gary and Company Cash $45 Accounts payables Receivables Notes payables Inventory 159 Other current liabilities Marketable securities 33 Total current liabilities Total current assets $303 Net fixed assets 147 Long Term Liabilities Total Assets $450 Long-term debt Total Liabilities $45 45 21 $111 24 $135 Owners Equity Common stock Retained earnings Total stockholders' equity Total liabilities and equity $114 201 315 $450
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