Financial statements and industry standard ratios

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Reference no: EM133036177

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.

 

 

1) Ratios

2) Grade

 

Industry Standards

2019

2020

2019

2020

Liquidity ratios:

 

 

 

 

 

Current ratio

5.00 

6

4

Good

Poor

Quick ratio

3.00 

3.25

1.92

Good

Poor

 

 

 

 

 

 

Activity ratios:

 

 

 

 

 

Inventory turnover

2.20 

2.18

2.32

Poor

Good

Days sales outstanding

90.00 

0.375

0.29

 

 

Fixed asset turnover

1.00 

1200

1394.23

 

 

Total asset turnover

0.75 

0.5

0.56

 

 

 

 

 

 

 

 

Profitability ratios:

 

 

 

 

 

Gross profit margin

 

41.67%

41.38%

 

 

Operating profit margin

20%

13.17%

16.14%

 

 

Return on equity

9%

9.88%

13.76%

 

 

 

 

 

 

 

 

Leverage ratios:

 

 

 

 

 

Debt ratio

0.33 

0.083438

0.1154

 

 

 

 

 

 

 

 

Coverage ratios:

 

 

 

 

 

Times-interest-earned

7.00 

4

4.625

 

 

Reference no: EM133036177

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