What the ratios calculations show

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Reference no: EM131447030

Assignment: Ratio Analysis

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 M1: Assignment 3 Dropbox by Wednesday, March 29, 2017.

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.

Reference no: EM131447030

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