# Assignment 3: Ratio Analysis

Assignment 3: Ratio Analysis

By  July 21, 2015 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.

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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 stockholdersâ€™ 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.

 Assignment 3 Grading Criteria Maximum Points Has correctly calculated the ratios. 40 Has correctly analyzed and interpreted the significance of the resulting ratios and suggested actions for improvement. 40 Wrote in a clear, concise, and organized manner; demonstrated ethical scholarship in accurate representation and attribution of sources; displayed accurate spelling, grammar, and punctuation 20 Total: 100