### Calculation of financial ratiosutilizing the attached

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Calculation of financial ratios.

Utilizing the attached Enclosure 1 "Balance Sheet and Income Statement for Spectrum, Inc"
a) Compute the following ten (10) financial ratios and provide a one sentence explanation of the analytic use of each ratio test. Show your formulas and input. Accuracy to two decimal points is sufficient.
b) Evaluate how Spectrum's financial performance compares to their Industry for each calculated ratio. It is sufficient to rate each ratio as "G"= good, "S" = satisfactory, or "P" = poor.

 1 Current ratio 2 2 Acid test ratio 1.06 3 Debt Ratio 0.58 4 Total asset turnover 1.18 5 Inventory Turnover 5.78 6 Operating Income Return on Investment 9.80% 7 Operating profit margin 8.30% 8 Times interest earned 3.93 9 Average collection period* 75 days 10 Return on Equity 12%

* ---Assume all sales are credit sales

 Spectrum, Inc. BALANCE SHEET (000) Cash \$500 Accounts receivable 1,500 Inventories 500 Current assets 2,500 Net fixed assets 5,000 Total Assets \$7,500.00 Accounts payable 1,200 Bank note 300 Total current liabilities 1,500 Long term debt 4,000 Common stock 300 Retained earnings 1,700 Total liabilities and owner\\'s equity \$7,500

 Spectrum, Inc. INCOME STATEMENT (000) Net sales \$8,500 Cost of goods sold 3,400 Gross profit 5,100 Operating expenses 2,900 Net operating income 2,200 Interest expense 580 Earnings before taxes 1,620 Income tax (34%) 551 Net income \$1,069

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