Finacial Management Wk1 Michael Smith

By the due date assigned 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. Turn in your completed work to the Submissions Area through the end of the day.

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’ equity

315

Total liabilities and equity

$450 

Income Statement Year 2010

Net sales

$795

Cost of goods sold 

660

Gross profit   

135

Selling expenses  

73.5

Depreciation

12

EBIT

49.5

Interest expense  

4.5

EBT

45

Taxes (40%)  

18

Net income 

27

1. Calculate the following ratios AND interpret the result against the industry average:

Ratio

Your Answer

Industry Average

Your Interpretation
(Good-Fair-Low-Poor)

Profit margin on sales

3%

Return on assets

9%

Receivable turnover

16X

Inventory turnover

10X

Fixed asset turnover

2X

Total asset turnover

3X

Current ratio

2X

Quick ratio

1.5X

Times interest earned

7X

2. Analysis:

Give your interpretation of what the ratios calculations show  and how the business can use this information to improve its  performance. Justify all answers.