Financial Ratios (14 items x 10 points)

Compute the following financial ratios and interpret the results (Low, High, OK) based on the given industry averages. Write your answers on the
spaces provided.

Ratio Formula Calculation Industry Comment

Average
Current ratio = Current Assets LOW
Current Current Liabilities 1,000,000 4.2
310,000= 3.23
LOW
Quick Quick ratio = 1,000,000−615,000 = 385,000 =1.24 2.2
Current Assets−Inventories 310,000310,000
Current LiabilitiesSales
Inventories LOW
Inventory turnover Inventory turnover ratio = 3,000,000 =4.88 10.9
615,000

Days Sales Outstanding = LOW

Days sales outstanding Receivables 375,000=45.63∨46 days 36 days
Annual Sales/ 365 3,000,000 /365
Fixed Assets Turnover = Net 3,000,000 =3.00 OK
Fixed assets turnover Ratio Sales Assets ¿ 1,000,000 2.8

Total Assets Turnover = Sales 3,000,000 = 1.5 LOW

Total assets turnover Ratio Total Assets 2,000,000 1.8

Total debt to total capital Total Debt To Total Debt 1,060,000 = 1,060,000 HIGH
Total Capital = Total Debt + Equity = 36.4%
1,060,000+ 940,000 2,000,000
53.00 %
Ratio Formula Calculation Industry Comment
Average
Times-Interest-Earned EBIT 283,800 =¿ 3.23 % LOW
Times-interest-earned Ratio= Interest Charges 88,000 6.0

Operating MarginE=BIT 283,800 =¿ 9.46 % LOW

Operating margin Sales 3,000,000 10.0%

Profit Margin =Net Income 117,500 =3.92 % LOW

Profit margin Sales 3,000,000 5.0%

Return on Total Assets = Net Income 117,500 =5.88 % LOW

Return on total assets Total Assets 2,000,00 9.0%

Return on Common Net Income 117,500 =12.50 % LOW

Return on common equity Equity = Common Equity 940,000 15.0%

Return on invested capital Return on Invested EBIT (1−T ) 283,800 (1−0.40) = 170,280 =1.31 % LOW
Capital = 130,000130,000 10.8%
Total Invested Capita
Basic Earning Power = EBIT 283,800 =14.19 % LOW
Basic earning power Total Assets 2,000,000 18.0%