4-6. (Ratio analysis) The balance sheet and income statement for the A. Thiel Mf

Question

4-6. (Ratio analysis) The balance sheet and income statement for the A. Thiel Mfg Company are as follows: Balance Sheet ($000) Cash Accounts receivable Inventories Current assets Net fixed assets Total assets Accounts payable Accrued expenses Short-term notes payable Current liabilities Long-term debt Owners' equity Total liabilities and owners' equity $ 500 2,000 1,000 $3,500 4,500 $8,000 $1,100 600 300 $2,000 2,000 4,000 $8000 Income Statement ($000) Sales (all credit) Cost of goods sold Gross profit Operating expenses (includes $500 depreciation) Operating profits Interest expense Earnings before taxes Income taxes (40%) Net income $8,000 (3,300) $4,700 (3,000) $1,700 (367) $1,333 (533) 800 Calculate the following ratios: Current ratio Times interest earned Inventory turnover Total asset turnover Operating profit margin Operating return on assets Debt ratio Days in receivables Fixed-asset turnover Return on equity

Explanation / Answer

Ratio Analysis Ratio names Formulas caluclation Answer Current Ratio Current assets/ current liabilities (3500/2000) 1.75 operating return on assets Net income/ total assets (800/8000) 0.1 Times interest earned operating income/interest expense (1700/367) 463% debt ratio Total debt/total assets (2000+2000)/8000 50% inventory turnover ratio cost of goods sold/inventory (3300/1000) 3.3 times Average collection period (Accounts receivable/annual credit sales)*365 (2000/8000)*365 91.25 days Total assets turnover ratio sales/total assets (8000/8000) 1.00 Fixed assets turnover ratio net sales/fixed assets 8000/4500 178% operating profit margin operating profit/sales (1700/8000) 21% return on equity net income/equity 800/4000 20%

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