FIN 401 FIN401 Module 1 Assignment 3 Ratio Analysis Solution (Argosy University)

FIN 401 FIN401 Module 1 Assignment 3 Ratio Analysis Solution (Argosy University)

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FIN 401 Module 1 Assignment 3 Ratio Analysis (Argosy University)

By monday, February 23, 2015 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.

Highlight your answers.  

Receivable turnover requires the use of credit sales. Since you are not given this number please use the sales figure of 795.

I am pasting the required form for you to complete, as a reminder.  Remember to show me your work. You can put the calculations at the end of your paper. If these are not included I will have to count the answer wrong.  

Ratio

Your Answer

Industry Average

Your Interpretation

(Good-Fair-Low-Poor)

Profit margin on sales

 

3%

 

Return on assets

 

9%

 

Receivable turnover

 

1.6X

 

Inventory turnover

 

10X

 

Fixed asset turnover

 

2X

 

Total asset turnover

 

3X

 

Current ratio

 

2X

 

Quick ratio

 

1.5X

 


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