Posted: November 14th, 2015

Finance

Finance

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.

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

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