Module 3 Assignment 1

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Author | | Date/Time * |

Charlie Merritt |   | 2/15/2014 8:44 AM |

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Richard, nice job with this assignment.  Your ratio calculations for receivable turnover and inventory turnover were incorrect, as well as three of your interpretations, so see solution below. Week 1 Assignment 3 | | | |

Solution: | | | |

Ratio | Your Answer | Industry Average | Your Interpretation |

| | | (Good-Fair-Low-Poor) |

Profit margin on sales | 3.40% | 3% | Fair |

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

Receivable turnover | 12 | 16X | Fair |

Inventory turnover | 5 | 10X | Poor |

Fixed asset turnover | 5.4 | 2X | Good |

Total asset turnover | 1.76 | 3X | Poor |

Current ratio | 2.73 | 2X | Fair |

Quick ratio | 1.3 | 1.5X | Fair |

Times interest earned | 11 | 7X | Good |

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Analysis: | | | |

The firm has problems with inventory and accounts receivables management. By improving these two areas the firm can show better performance |

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Profit margin: | | | |

Net income/ sales = 27/795 = 3.4% | | |

Return on assets:   | | | |

Net income/ total assets = 27/450 = 6% | | |

Receivable turnover: | | | |

Sales (credit)/ receivables = 795/66 = 12.05 | |

Inventory turnover: | | | |

Sales/inventory = 795/159 = 5x | | | |

Fixed asset turnover: | | | |

Sales/ fixed assets = 795/147 = 5.4x | | |

Total asset turnover: | | | |

Sales/ total assets = 795/450 = 1.77x | | |

Current ratio: | | | |

Current assets/ current liabilities = 303/111 = 2.73 | |

Quick ratio: | | | |

(current assets – inventory) / current liabilities = (303-159)/111 = 1.30 |

Times interest earned: | | | |

Earnings before interest and tax (EBIT)/ interest...