M1A3 Ratio Analysis
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Module1Solutions.docx|
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Ratio |
Your Answer |
Industry Average |
Your Interpretation |
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(Good-Fair-Low-Poor) |
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Profit margin on sales |
3.40% |
3% |
Fair |
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Return on assets |
6% |
9% |
Low |
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Receivable turnover |
12 |
1.6X |
Fair |
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Inventory turnover |
5 |
10X |
Poor |
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Fixed asset turnover |
5.41 |
2X |
Poor |
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Total asset turnover |
1.76 |
3X |
Poor |
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Current ratio |
2.7 |
2X |
Fair |
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Quick ratio |
1.3 |
1.5X |
Fair |
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Times interest earned |
11 |
7X |
Good |
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Analysis: |
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The firm has problems with inventory and accounts receivables management. By improving these two areas the firm can show better performance |
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Profit margin: |
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Net income/ sales = 27/795 = 3.4% |
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Return on assets: |
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Net income/ total assets = 27/450 = 6% |
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Receivable turnover: |
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Sales (credit)/ receivables = 795/66 = 12.05 |
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Inventory turnover: |
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Sales/inventory = 795/159 = 5x |
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Fixed asset turnover: |
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Sales/ fixed assets = 795/147 = 5.4x |
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Total asset turnover: |
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Sales/ total assets = 795/450 = 1.77x |
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Current ratio: |
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Current assets/ current liabilities = 303/111 = 2.73 |
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Quick ratio: |
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(current assets – inventory) / current liabilities = (303-159)/111 = 1.30 |
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Times interest earned: |
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Earnings before interest and tax (EBIT)/ interest expense = 49.5/4.5 = 11 |
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