Financial Ratios - 6 points Calculate: Gross Profit Margin and Current Ratio Net
ID: 375950 • Letter: F
Question
Financial Ratios - 6 points
Calculate: Gross Profit Margin and Current Ratio
Net Sales = $2,000,000
COGS = $1,000,000
Total Operating Expenses = $400,000
Interest Expense = $200,000
Taxes = $200,000
Current Liabilities = $600,000
Current Assets = $1,500,000
Compare your profit margin with two competitors having 22% and 28% profit margins. Explain your position. Also, what is your assessment of the firm’s current ratio (need to research here). To do an extensive financial analysis, what additional techniques do you need to do?
Explanation / Answer
Gross profit = Sales - COGS = 2,000,000 - 1,000,000 = 1,000,000
Gross profit margin = (Sales - COGS)/Sales= 1,000,000/2,000,000
= 50%
Company is earning higher gross profit margins as compared to its competitors.
Current ratio = Current assets/Current liabilities = 1,500,000/600,000 = 2.5
Current ratio shows how strong company financially is and how it is able to effectively invest its assets.
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