finacial management wk1 michael smith

 

By the due date assigned 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. Turn in your completed work to the Submissions Area through the end of the day.

   

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 

 

Net fixed assets  

147

Long Term Liabilities

 

Total Assets   

$450 

Long-term debt  

24

 

Total Liabilities  

$135 

 

 

Owners Equity

 

Common stock

$114

 

Retained earnings

201

 

Total stockholders’ 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

 

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.