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 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. 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

• Posted: 3 years ago
ratio analysis

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