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Assignment 3: Ratio Analysis
By
Wednesday, February 17, 2016 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
, February, 2016.
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Balance Sheet as of December 31, 2010
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Gary and Company
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Cash
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$45
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Accounts payables
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$45
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Receivables
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66
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Notes payables
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45
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Inventory
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159
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Other current liabilities
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21
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Marketable securities
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33
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Total current liabilities
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$111
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Total current assets
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$303
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Net fixed assets
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147
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Long Term Liabilities
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Total Assets
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$450
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Long-term debt
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24
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Total Liabilities
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$135
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Owners Equity
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Common stock
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$114
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Retained earnings
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201
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Total stockholders’ equity
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315
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Total liabilities and equity
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$450
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Income Statement Year 2010
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Net sales
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$795
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Cost of goods sold
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660
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Gross profit
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135
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Selling expenses
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73.5
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Depreciation
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12
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EBIT
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49.5
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Interest expense
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4.5
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EBT
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45
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Taxes (40%)
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18
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Net income
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27
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1. Calculate the following ratios AND interpret the result
against the industry average:
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Ratio
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Your Answer
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Industry Average
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Your Interpretation
(Good-Fair-Low-Poor)
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Profit margin on sales
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3%
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Return on assets
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9%
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Receivable turnover
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16X
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Inventory turnover
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10X
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Fixed asset turnover
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2X
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Total asset turnover
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3X
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Current ratio
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2X
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Quick ratio
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1.5X
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Times interest earned
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7X
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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.
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Assignment 3 Grading Criteria
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Maximum Points
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| Has correctly calculated the ratios. |
40
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| Has correctly analyzed and interpreted the significance of the
resulting ratios and suggested actions for improvement. |
40
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| 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
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Total:
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100
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