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BUSN9119 - Financial Management

Tutorial Question - Semester 1, 2020

Topic: Financial Statement Analysis

Student : PHUONG GIANG NGUYEN – ID: 2225141
Required Task: Financial statement analysis for Bartlett company.
 Calculate following ratios for Bartlett company and critically
comment on the financial performance of the company.

1. Gross profit margin

The gross profit margin measures the percentage of each sales dollar
remaining after the firm has paid for its goods. The higher the gross
profit margin, the better (that is, the lower the relative cost of
merchandise sold)
Gross profit margin = Gross profit / Sales = $986,000 / $3,074,000 =
32.1%
2. Operating profit margin
The operating profit margin measures the percentage of each sales
dollar remaining after all costs and expenses other than interest,
taxes, and preferred stock dividends are deducted. It represents the
“pure profits” earned on each sales dollar. The higher operating
profit margin, the better.
Operating profit margin = Operating profits / Sales
 = $418,000 / $3,074,000 = 13.59%
3. Net profit margin
The net profit margin measures the percentage of each sales dollar
remaining after all costs and expenses, including interest, taxes, and
preferred stock dividends, have been deducted. The higher the
firm’s net profit margin, the better.
Net profit margin = Earnings available for common stockholders /
Sales = $221,000/ $3,074,000 = 7.19%
4. Return on Total assets (ROA)
ROA/ROI measures the overall effectiveness of management in
generating profits with its available assets. The higher the firm’s
return on total assets, the better.
Return on total assets = Earnings available for common stockholders
/ Total assets = $221,000/ $3,597,000 = 6.14%
5. Return on Equity
ROE measures the return earned on the common stockholders’
investment in the firm. The higher ROE, the better off are the
owners.
Return on equity = Earnings available for common stockholders /
Common stock equity= $221,000/ $1,754,000 = 12.6%
6. EPS
EPS is generally of interest to present or prospective stockholders
and management. As we noted earlier, EPS represents the number of
dollars earned during the period on behalf of each outstanding share
of common stock.
Earnings per share = Earnings available for common stockholders /
 Number of shares of common stock outstanding = $221,000/ 76,262
= $2.9

7. P/E
P/E Measures the amount that investors are willing to pay for each
dollar of a firm’s earnings; the higher the P/E ratio, the greater is
investor confidence.
Price/earnings (P/E) ratio = Market price per share of common
stock / Earnings per share = X / $2.9
8. Debt Ratio
The debt ratio measures the proportion of total assets financed by
the firm’s creditors. The higher this ratio, the greater the amount of
other people’s money being used to generate profits.
Debt ratio = Total liabilities / Total assets = $1,643,000 / $3,597,000
= 45.68 %
9. Current ratio
A measure of liquidity calculated by dividing the firm’s current assets
by its current liabilities. Generally, the higher the current ratio, the
more liquid the firm is considered to be.
Current ratio = Current assets / Current liabilities = $ 1,223,000/
$620,000 = 1.97
10. Quick ratio
A measure of liquidity calculated by dividing the firm’s current assets
minus inventory by its current liabilities. A quick ratio of 1.0 or
greater is occasionally recommended, but as with the current ratio,
what value is acceptable depends largely on the industry.
Quick ratio = (Current assets - Inventory)/ Current liabilities
= ($ 1,223,000 – 289,000) / $620,000 = 1.5