M1A3 Ratio Analysis

Assignment 3: Ratio Analysis

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 payable                      $45

Receivables                            66                Notes payable                               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.

Assignment 4 Grading Criteria

Maximum Points

Has correctly calculated the ratios. 40

Has correctly analyzed and interpreted the significance of the resulting ratios and suggested actions for improvement. 40

Wrote in a clear, concise, and organized manner; demonstrated ethical scholarship in accurate representation and attribution of sources; displayed accurate spelling, grammar, and punctuation 20

Total: 100