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Ratio Analysis

RATIO ANALYSIS
		1) Ratios		2) Grade
	Industry Standards	2019	2020	2019	2020
Liquidity ratios:
Current ratio	5.00	6	4	Good
Quick ratio	3.00				Poor
Activity ratios:
Inventory turnover	2.20
Days sales outstanding	90.00
Fixed asset turnover	1.00
Total asset turnover	0.75
							RATIO FORMULAS
Profitability ratios:							CURRENT RATIO : Current assets / Current liabilities
							QUICK RATIO: (Current assets - Inventory) / Current liabilities
Operating profit margin	20%
Return on equity	9%
							INVENTORY TURNOVER: Annual sales / Average inventory						Since no previous inventory amount was provided in the problem just use the inventory amount for average inventory in the formula
Leverage ratios:
Debt ratio	0.33						DAY SALES OUTSTANDING: Account Receivables / Sales per day						-For the Sales per Day you would just use the Sales amount from the income statement.
							FIXED ASSET TURNOVER: Annual sales / Fixed assets						For the fixed assets you would take the Sales from the Income Statement and divide it by "Net Plant and Equipment" line item in the Balance Sheet.
Coverage ratios:							TOTAL ASSET TURNOVER: Annual sales / Total assets
Times-interest-earned	7.00
DATA
Balance Sheet	2019	2020					OPERATING PROFIT MARGIN: Net income / Sales
Assets:
Cash	$200	$150					RETURN ON EQUITY: Net income / Equity
Account Receivables	450	425
Inventory	550	625
Current assets	1,200	1,200
Plant and equip.	2,200	2,600					DEBT RATIO: Total Debt / Total assets				-For the Total Debt you would take the "Current Liabilities" line item then add that amount to "Bonds" line item then divide by "Total Assets" line item.
Less: Acc dep	1,000	1,200
Net plant and equip.	1,200	1,400
Total assets	$2,400	$2,600					COVERAGE RATIO: Net Income before taxes / Annual interest expense
Liabilities and Owners' Equity:	2019	2020
Accts/Pay	$200	$150
Notes Pay-Current	0	150
Current liabilities	200	300
Bonds	600	600
Owners' equity						-
Common stock	300	300
Paid-in Capital	600	600
Retained earnings	700	800
Total owners' equity	1,600	1,700
Total liabilities and owners' equity
owners' equity	$2,400	$2,600
Income Statement:	2019	2020
Sales	$1,200	$1,450
COGS	700	850
Gross profit	500	600
Operating expenses	30	40
Depreciation	220	200
Net operating income	250	360
Interest expense	50	64
Net income before tax	200	296
Taxes (21%)	42	62
Net income	$158	$234

Instructions: The financial statements and industry standard ratios are listed below for a hypothetical firm. Complete the blue section. 1) Compute the financial ratios for the firm (columns C and D). 2) Compare both 2019 and 2020 ratios to the industry standards (columns E and F). Label "Good" if the firm's ratio is favorable against the industry ratio. "Poor" if the ratio is unfavorable. See the examples in columns E and F. 3) Give a summary of the company's financial health. Is the company doing well financially? Why or why not? Use at least 3 data points to support your reasoning.

3) type in your answer here.