Ratios M1 A3

Ratio Analysis

Argosy University

Financial Management

Professor Roger Ignatius

Balance Sheet as of December 31, 2010 |

Gary and Company |

Cash   | $45 |   | Accounts payables   | $45 |

Receivables     | 66 |   | Notes payables  | 45 |

Inventory | 159 |   | Other current liabilities  | 21 |

Marketable securities | 33 |   | Total current liabilities | $111 |

Total current assets  | $303 |   |   |   |

Net fixed assets   | 147 |   | Long Term Liabilities |   |

Total Assets   | $450 |   | Long-term debt   | 24 |

  |   | Total Liabilities  | $135 |

  |   |   |   |

  |   | Owners Equity |   |

  |   | Common stock | $114 |

  |   | Retained earnings | 201 |

  |   | Total stockholders’ equity | 315 |

  |   |   | Total liabilities and equity | $450 |

Income Statement Year 2010 |

  |   |

Net sales | $795 |

Cost of goods sold  | 660 |

Gross profit   | 135 |

Selling expenses   | 73.5 |

Depreciation | 12 |

EBIT | 49.5 |

Interest expense   | 4.5 |

EBT | 45 |

Taxes (40%)   | 18 |

Net income | 27 |

Ratio | Your Answer | Industry Average | Your Interpretation

(Good-Fair-Low-Poor) |

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

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

Receivable turnover |   12X | 16X |   Poor |

Inventory turnover |   5X | 10X |   Poor |

Fixed asset turnover |   5.4X | 2X |   Good |

Total asset turnover |   1.7X | 3X |   Low |

Current ratio |   2.7X | 2X |   Good |

Quick ratio |   1.2 | 1.5X |   Low |

Times Interest Earned | 11X | 7X | Good |

1. Calculate the following ratios and interpret the result against the industry average:

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....