# Assignment 3: ratio analysis – au fin401 – highlight answers in

## Assignment 3: Ratio Analysis

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 theSubmissions 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

Industry Average

(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.

Assignment 4 Grading CriteriaMaximum PointsHas correctly calculated the ratios.40Has correctly analyzed and interpreted the significance of the resulting ratios and suggested actions for improvement.40Wrote in a clear, concise, and organized manner; demonstrated ethical scholarship in accurate representation and attribution of sources; displayed accurate spelling, grammar, and punctuation20Total:100