Assignment 3: Ratio Analysis

By Week 1, Day 7 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. Total asset turnover

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 sale

3%

Return on assets

9%

Receivable turnove

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.

?Assignment 3 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