A company has been given the task of reviewing the performance of her company ov

Question

A company has been given the task of reviewing the performance of her company over three recent years against the following industry information (figures in $000):

Should the company be critical of her company's performance? Calculate and show the required ratios for each year and the average for the three years using formulas.

Year Net Income Current Assets Current Liabilities Total Assets Total Liabilities Sales 2012 $400 $500 $530 $3,800 $2,600 $4,000 2013 425 520 510 3,900 2,500 4,500 2014 440 550 510 4,000 2,400 4,700 The industry averages are: NI/Sale Current Ratio Total Asset Turnover 0.0942 1.13 2.00

Explanation / Answer

Ans:- Company performance can be calculated

Return on assets=(Net Income */sales)x{sales/ Assets}x[Assets/Equity]

Equity=Total Assets-Total Liabilities

Performancein 2012 can be calculated as= 400/4000 x4000/3800x3800/1200

= 0.33

And like that in 2013 & 2014 performance ratios can be 0.30 & 0.12

the performance of the company was so critical by taking return on assets and sales ratio.

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