solve the problem below, calculate the ratios, interpret the results against the
ID: 2649982 • Letter: S
Question
solve the problem below, calculate the ratios, interpret the results against the industry average, and fill in the table on the worksheet. Then, provide an analysis of how those results can be used by the business to improve its performance.
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
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
Explanation / Answer
Part A
Part 2:
Ratio calculation Answer Industry average Interpretation Profit margin = net income / net sales 27 / 795 3.40% 3% Good Return on assets = Net Income / average total assetsAverage total assets = (Begening assets + ending assets )/ 2 = (0 + 450)/2 = 225 27 / 225 12.00% 9% Good Receivable turnover = Net credit sales / average account receivables
(We do not have credit sales amount so we are assuming 50% of net sales as credit sales) = 795/2 = 397.5
Average receivable = (opening receivable + closing) / 2 = 0+66 / 2 = 33 397.5 / 33 12.05 16 X Good Inventory turnover ratio = cost of goods sold / average inventory
Average inventory = (Begening inventory + ending inventory) / 2 = (0+159 )/2 = 79.5 660 / 79.5 8.30 10 X good Fixed Asset tunover ratio = Net Sales / Average Total fixed Assets
Average total fixed Assets = Begening assets + closing / 2
=( 0 + 147 ) /2 = 73.5 795 / 73.5 10.82 2 X Good Total Asset Turnover = Net Sales / average total assets
Average total assets = (Begening assets + closing asset )/2
= (0 + 450)/2 = 225 795 / 225 3.53 3 X Good Current ratio = total current assets / total current liabilities 303 / 111 2.73 2 X Good Quick Ratio = Total current asset - inventory / total current liabilities (303 - 159 )/ 111 1.30 1.5 X Low Times interest earned ratio = EBIT / interest expenses 49.5 /4.5 11 7 X Good
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