Ratio Analysis Required: 1. Calculate the following ratios for 2012 and 2013. Ro
ID: 2462283 • Letter: R
Question
Ratio Analysis
Required:
1. Calculate the following ratios for 2012 and 2013. Round your answers to two decimal places.
2. Conceptual Connection: For each of the first three ratios listed above provide a plausible explanation for any differences that exist. (For example, why is the net profit margin higher or lower than it was the previous year?)
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Item 9
3. Conceptual Connection: Explain what each ratio attempts to measure. Make an assessment about Small Company based upon the ratios you have calculated.
The input in the box below will not be automatically graded, but may be reviewed and considered by your instructor.
Item 10
Are operations improving or worsening?
SelectImprovingWorseningItem 11
Explanation / Answer
Year
2012 = 800567/1691594 * 100 = 47.33 %
2013 = 776550/ 1658426 * 100 = 46.82 %
b). Operating Margin = Operating income / Net Sales * 100
Year
2012 = 303609 / 1691594 * 100 = 17.95%
2013 = 294500 / 1658426 *100 = 17.76 %
c). Net Profit Margin = Net profit / Net Sales * 100
Year
2012 = 300573 / 1691594 * 100 = 17.77 %
2013 = 298034 / 1658426 * 100 = 17.97 %
d). Account receivable Turnover = Net credit Sales / Average Account receivable
Year
2012 = 1691594 / 314217.50 = 5.38 Times
Note: - Average account receivable = Opening receivable + Closing receivable / 2
= 335252 + 293183 / 2
= 314217.50
Year
2013 = 1658426 / 330392 = 5.02 Times
Note: - Average account receivable = Opening receivable + Closing receivable / 2
= 293183 + 367601 / 2
= 330392
Q. 3. Gross profit ratio indicates relationship between gross profit and net sales. Higher ratio, low cost of goods sold.
Operating margin ratio determines operational efficiency of management.
Net profit Margin indicates overall efficiency of business, Higher the net profit ratio, better the business.
Average receivable turnover ratio indicates economy and efficiency in collection of amount due from debtors.
Q. 2. Gross profit margin is less in year 2013 than year 2012 because sales are high in year 2012.
Operating margin is less in year 2013 than year 2012 because sales are high in year 2012.
Net profit margin is high in year 2013 than year 2012 due to less cost of goods sold and operating expenses.
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