Case Study

Case Study Analysis: Accounting and Finance Management

1. Accounting Tools

a. Profitability Ratios

i. Gross Profit Margin = Revenue – Cost of Goods Sold

Revenue

= 1,500,000 – 1,080,000

1,500,000

= 0.28

ii. Operating Profit Margin = Operating Income

Net Sales

= 1,500,000 – 1,080,000 -315,000

1,500,000

= 0.07

iii. Net Profit Margin = Net Income

Net Sales

= 15,000

1,500,000

= 0.01

b. Operating Efficiency Ratios

iv. Accounts Receivables Turnover = Net Credit Sales

Ave. Accounts receivables

v. Ave. Age of Accounts Receivables = Accounts Receivables x 360

Sales Revenue

= 150,000 x 360

1,500,000

= 36

vi. Inventory Turnover Ratio = Cost of Goods Sold

Ave. Inventory

= 1,080,000

200,000

= 5.4

vii. Ave. Age of Inventory Turnover = 360 / Inventory Turnover

= 360 / 5.4

= 66.7

viii. Asset Turnover = Net Sales

Ave. Total Assets

= 1,500,000

1,000,000

= 1.5

c. Financial Leverage Ratios

ix. Debt Ratio = Total Liabilities

Total Assets

= 150,000

1,000,000

= 0.15

d. Liquidity/Solvency Ratios

x. Current Ratio = Current Assets

Current Liabilities

= 1,000,000

150,000

= 6.7

xi. Quick Ratio = Cash + Cash Equiv + Short-Term Investments + Receivables

Current Liabilities

= 30,000 + 150,000

150,000

= 1.2

e. Return on Equity = Net Income

Shareholder’s Equity

= 15,000

300,000

= 0.05

2. Return on Equity is a very useful accounting tool to summarize the financial operations of a company because it can efficiently measure a company’s ability to use the money from shareholders to...