Compute each of the following ratios for 2014 and 2015 and indicate whether each
ID: 2740656 • Letter: C
Question
Compute each of the following ratios for 2014 and 2015 and indicate whether each ratio was getting "better" or "worse" from 2014 to 2015 and was "good" or "bad" compared to the Industry Avg (round all numbers to 2 digits past the decimal place)
Ratios
2014
2015
Enter “Better” or “Worse”
Industry Avg
Enter "Good" or "Bad" compared to Industry Avg
Profit Margin
0.11
Current Ratio
1.90
Quick Ratio
1.12
Return on Assets
.26
Debt to Assets
.55
Receivables turnover
18.00
Avg. collection period*
21.20
Inventory Turnover**
8.25
Return on Equity
0.25
Times Interest Earned
8.15
*Assume a 360 day year
Income Stmt info:
2014
2015
Sales
$ 1,050,000
$ 1,102,500
less Cost of Goods Sold:
325,000
351,000
Gross Profit
725,000
751,500
Operating Expenses
575,000
609,500
Earnings before Interest & Taxes
150,000
142,000
Interest exp
25,000
30,000
earnings before Taxes
125,000
112,000
Taxes
50,000
44,800
Net Income
$ 75,000
$ 67,200
Balance Sheet info:
12/31/2014
12/31/2015
Cash
60,000
$ 57,000
Accounts Receivable
80,000
$ 80,800
Inventory
110,000
$ 121,000
Total Current Assets
$ 250,000
$ 258,800
Fixed Assets (Net)
$ 300,000
$ 318,000
Total Assets
$ 550,000
$ 576,800
Current Liabilities
$ 130,000
$ 149,500
Long Term Liabilities
$ 150,000
$ 140,000
Total Liabilities
$ 280,000
$ 289,500
Stockholder's Equity
$ 270,000
$ 287,300
Total Liab & Equity:
$ 550,000
$ 576,800
Ratios
2014
2015
Enter “Better” or “Worse”
Industry Avg
Enter "Good" or "Bad" compared to Industry Avg
Profit Margin
0.11
Current Ratio
1.90
Quick Ratio
1.12
Return on Assets
.26
Debt to Assets
.55
Receivables turnover
18.00
Avg. collection period*
21.20
Inventory Turnover**
8.25
Return on Equity
0.25
Times Interest Earned
8.15
Explanation / Answer
Ratios 2014 2015 Enter “Better” or “Worse” Industry Avg Enter "Good" or "Bad" compared to Industry Avg Profit Margin= Net Income/Sales 7.14% 6.10% Worse 0.11 Bad Current Ratio= CA/CL 1.92 1.73 Worse 1.9 Bad Quick Ratio= CA-Inventory/CL 1.08 0.92 Worse 1.12 Bad Return on Assets=Net Income/Total assets 0.14 0.12 Worse 0.26 Bad Debt to Assets=Total Debt/Total assets 0.51 0.50 Worse 0.55 Bad Receivables turnover= Sales/AR 13.13 13.64 Better 18 Bad Avg. collection period*= 360/Receivable TO 27.43 26.38 Better 21.2 Bad Inventory Turnover**=Sales/Inventory 9.55 9.11 Worse 8.25 Good Return on Equity=Net Income/Equity 0.28 0.23 Worse 0.25 Bad Times Interest Earned=EBIT/Interest 6.00 4.73 Worse 8.15 Bad
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