Assignment 3: Ratio Analysis.

Assignment 3: Ratio Analysis

By Wednesday, January 8, 2014 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 M1:

Assignment 3 Dropbox by Wednesday, January 8, 2014.

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

$135

Liabilities

Owners

Equity

Common stock

$114

Retained

201

earnings

Total

315

stockholders’

equity

Total liabilities and equity

$450

�Income Statement Year 2010

Net sales

Cost of goods sold

Gross profit

Selling expenses

Depreciation

EBIT

Interest expense

EBT

Taxes (40%)

Net income

$795

660

135

73.5

12

49.5

4.5

45

18

27

1. Calculate the following ratios AND interpret the result against the

industry average:

Ratio

Your Answer

Industry

Your Interpretation

Average

(Good-Fair-Low-Poor)

Profit margin on

3%

sales

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.

Assignment 3 Grading Criteria

Has correctly calculated the ratios.

Has correctly analyzed and interpreted the significance of the

resulting ratios and suggested actions for improvement.

Assignment 3: Ratio Analysis