The Ferri Furniture Company, A Manufacturer and Wh...

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Fundamental Fundamental Fundamental

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a.
Current ratio:
Current ratio is the ratio of current assets and current

liabilities. The current ratio is calculated by dividing
current
assets with current liabilities:
Hence, the current ratio will be
Days’ sales outstanding:
Days’ sales outstanding will be computed with the help of

formula shown below:
Hence, the days’ sales outstanding will be
Inventory turnover:
Inventory turnover ratio is used to determine the rate at which

the inventory is converted into sales. The
inventory turnover ratio
is calculated by dividing sales with average inventory.
Hence, the inventory turnover will be
Total Asset turnover:
The total asset turnover ratio is the ratio of sales to total

assets. This ratio is calculated to determine the
efficiency of
assets to generate sales.
Hence, the total asset turnover will be
Debt ratio:
Debt ratio is the relationship between borrowed fund and owners’

capital. It is calculated as follows:
Hence, the debt ratio will be
Net profit margin:
The net profit margin is the ratio of earnings before interest

and taxes to sales. This ratio measures the
relationship between
net profit earned by the firm and total sales.

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Hence, the net profit margin will be
Return on assets:
Return on assets will be computed with the help of formula shown

below:
Hence, the return on assets will be
Return on equity:
Return on equity will be computed with the help of formula shown

below:
Hence, the return on equity will be
b.
Du Pont analysis:
Du Pont equation shows that the return on assets is equal to the

product of net profit margin and total
assets turnover. The formula
for Du Pont analysis is as follows:
c.
Reasons for low profit:
The low profit does not depend on balance sheet or income

statement. The low profit might be due to
inefficient utilisation
of assets or higher costs of operating the business. The balance
sheet and income
statement figures are only the representation of
figures.
d.
Comparison of financial position of F:
The financial position of F can be summarised as follows:
From the above chart it can be concluded that the inventory

turnover, net profit margin and current ratios
are not in line with
industry average.
e.
Effect of change in the sales, inventories and accounts

receivable:
The effect of change in sales will increase inventory, and
accounts receivable. The effect of the above
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figures can be
summarised as follows:
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• The inventories and accounts receivables have been increased.

It will increase the value of current assets
and the current ratio
will increase.
• The increase in sales will increase the profit.
• The increase in sales will decrease the value of days’ sales

outstanding.
• The increase in common equity will decrease the return on

equity due to the increase in denominator of
return on equity.
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Fundamental Fundamental Fundamental

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Show transcribed image text

Navya Sudha answered this

Current ratio is the ratio of current assets and current

Hence, the current ratio will be

Days’ sales outstanding:

Days’ sales outstanding will be computed with the help of

Hence, the days’ sales outstanding will be

Inventory turnover ratio is used to determine the rate at which

Hence, the inventory turnover will be

Total Asset turnover:

The total asset turnover ratio is the ratio of sales to total

Hence, the total asset turnover will be

Debt ratio is the relationship between borrowed fund and owners’

Hence, the debt ratio will be

Net profit margin:

The net profit margin is the ratio of earnings before interest

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Hence, the net profit margin will be

Return on assets will be computed with the help of formula shown

Hence, the return on assets will be

Return on equity will be computed with the help of formula shown

Hence, the return on equity will be

Du Pont equation shows that the return on assets is equal to the

Reasons for low profit:

The low profit does not depend on balance sheet or income

Comparison of financial position of F:

The financial position of F can be summarised as follows:

From the above chart it can be concluded that the inventory

Effect of change in the sales, inventories and accounts

• The inventories and accounts receivables have been increased.

• The increase in sales will increase the profit.

• The increase in sales will decrease the value of days’ sales

• The increase in common equity will decrease the return on

Thanku...pls give positive rating

Questions viewed by other students

Q: Don't weste your time if you want solve without MATLAB

A: See answer 100% (1 rating)

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