Ratio Analysis

Assignment 3: Ratio Analysis

By the due date assigned 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 Submissions Area through the end of the day.

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
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  

  1. 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.

Assignment 4 Grading Criteria Maximum Points
Has correctly calculated the ratios. 40
Has correctly analyzed and interpreted the significance of the resulting ratios and suggested actions for improvement. 40
Wrote in a clear, concise, and organized manner; demonstrated ethical scholarship in accurate representation and attribution of sources; displayed accurate spelling, grammar, and punctuation 20
Total: 100