Assignment 3: Ratio Analysis – AU FIN401 – Highlight answers in YELLOW!!

 
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 theSubmissions 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
(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.
Assignment 4 Grading CriteriaMaximum PointsHas correctly calculated the ratios.40Has correctly analyzed and interpreted the significance of the resulting ratios and suggested actions for improvement.40Wrote in a clear, concise, and organized manner; demonstrated ethical scholarship in accurate representation and attribution of sources; displayed accurate spelling, grammar, and punctuation20Total:100