Submitted by: Submitted by student19
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Category: Business and Industry
Date Submitted: 10/06/2014 07:26 PM
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...