ratio analysis
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.
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 
 Longterm 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 
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. Provide references.
Grading Criteria 

Has correctly calculated the ratios. 

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

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