Ratio Analysis

Assignment 3: Ratio Analysis |

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% | 3% | Good

Return on assets | 6% | 9% | Low | |

Receivable turnover | 12 | 16X | Low | |

Inventory turnover | 5 | 10X | Poor | |

Fixed asset turnover | 5 | 2X | Good | |

Total asset turnover | 2 | 3X | Fair | |

Current ratio | 3 | 2X | Good | |

Quick ratio | 1.3 | 1.5X | Good | |

Times interest earned | 11 | 7X | Good | |

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.

Profit margin on sales | Gary and Company is the same as the industry average in how much of every dollar of sales the company keeps

Return on assets | Gary and Company is turning over less inventory and is 33% less profitable than the industry average |

Receivable turnover | Gary and Company is 4% below average in the effectiveness of extending credit and collecting debts

Inventory turnover | Gary and Company is 5% below the industry average in measuring the number of times the inventory is sold or used in this period

Fixed asset turnover | Gary and Company has been 3% better than the industry average in being able to turn investments into generating revenue

Total asset turnover | Gary and Company is below the industry average in generating revenue per dollar of assets

Current ratio | Gary and Company is showing they are more capable than the industry average in paying off their debt

Quick ratio | Gary and Company is .2% below the industry average yet still showing they have liquid assets available to cover liabilities

Times...