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Assignment 3: Ratio Analysis
By Wednesday, January 8, 2014 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 M1:
Assignment 3 Dropbox by Wednesday, January 8, 2014.
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
$135
Liabilities
Owners
Equity
Common stock
$114
Retained
201
earnings
Total
315
stockholders’
equity
Total liabilities and equity
$450
�Income Statement Year 2010
Net sales
Cost of goods sold
Gross profit
yle=”background-color: white; box-sizing: border-box; color: #3a3a3a; font-family: ‘Open Sans’, sans-serif; font-size: 12px; line-height: 18px;” />Selling expenses
Depreciation
EBIT
Interest expense
EBT
Taxes (40%)
Net income
$795
660
135
73.5
12
49.5
4.5
45
18
27
1. Calculate the following ratios AND interpret the result against the
industry average:
Ratio
Your Answer
Industry
Your Interpretation
Average
(Good-Fair-Low-Poor)
Profit margin on
3%
sales
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
Has correctly calculated the ratios.
Has correctly analyzed and interpreted the significance of the
resulting ratios and suggested actions for improvement.
Maximum
Points
40
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
