The purpose of this assessment is to determine current ratio and debt to equity
ID: 2466458 • Letter: T
Question
The purpose of this assessment is to determine current ratio and debt to equity ratio and understand the importance of these ratios in determining the financial health of an organization.
The Roost Department Stores, Inc.’s chief executive officer (CEO) has asked you to compare the company’s profit performance and financial position with the averages for the industry. The CEO has given you the following company’s income statement and balance sheet as well as the industry average data for retailers:
Income Statement:
Income Statement Compared with Industry
Average
Year Ended December 31, 2016
Balance Sheet:
Balance Sheet Compared with Industry
Average December 31, 2016
Based on this data, answer the following questions:
1. Prepare a common-size income statement and balance sheet, respectively, for Roost. The first column of each statement should present Roost’s common-size statement, and the second column, the industry averages. Rename the worksheets, replacing nn with your initials.
2. For the profitability analysis, compute Roost’s gross profit percentage and profit margin ratio. Compare these figures with the industry averages. Is Roost’s profit performance better or worse than the industry average?
3. For the analysis of financial position, compute Roost’s current ratio and debt to equity ratio. Compare these ratios with the industry averages. Assume the current ratio industry average is 1.47, and the debt to equity industry average is 1.83. Is Roost’s financial position better or worse than the industry averages?
Roost Department Stores, Inc.Income Statement Compared with Industry
Average
Year Ended December 31, 2016
Roost Industry Average Net sales $779,000 100% Cost of goods sold $526,604 65.8% Gross profit $252,396 34.2% Operating expenses $163,590 19.7% Operating income $88,806 14.5% Other expenses $5,453 0.4% Net Income $83,353 14.1%Explanation / Answer
Common size income statement can be summarised as
all firm % are calculated on sale value
ex
cogs = (526604 / 779000) x 100 ,= 67.6 % and so on
common size balance sheet
all % are calculated using total of balance sheet
ex. current assets =
316780 / 470000, =67.4 % and so on
Firm % Industry average Net sales 779000 100 100 CoGS 526604 67.6 65.8 Gross profit 252396 32.4 34.2 Operating exense 163590 21 19.7 Operating income 88806 11.4 14.5 Other expense 5453 0.7 0.4 Net Income 83353 10.7 14.1common size balance sheet
all % are calculated using total of balance sheet
ex. current assets =
316780 / 470000, =67.4 % and so on
Current Assets 316780 67.4 70.9 Fixed assets 120320 25.6 23.6 Intangible assets 7990 1.7 0.8 Other assets 24910 5.3 4.7 Total assets 470000 100 100 Current Liabilities 217140 46.2 48.1 Long term liabilities 104340 22.2 16.6 Total Liabilities 321480 68.4 64.7 Stockholders equity 148520 31.6 35.3 Total Liabilities & Equity 470000 100 100Related Questions
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