Finance

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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 Liabilities | $135|
 |  |  |  |
 |  | Owners Equity|  |
 |  | Common stock| $114|
 |  | Retained earnings| 201|
 |  | Total stockholders’ equity| 315|
 |  |  | Total liabilities and equity| $450|
 
Income Statement Year 2010|
 |  |
Net sales| $795|
Cost of goods sold | 660|
Gross profit  | 135|
Selling expenses  | 73.5|
Depreciation| 12|
EBIT| 49.5|
Interest expense  | 4.5|
EBT| 45|
Taxes (40%)  | 18|
Net income| 27|
 
1. Calculate the following ratios AND interpret the result against the industry average: Ratio| Your Answer| Industry Average| Your Interpretation (Good-Fair-Low-Poor)|
Profit margin on sales|  27/795=3.3%| 3%|  Good|
Return on assets|  27/450=6%| 9%|  Bad|
Receivable turnover|  795/66=12.04| 1.6X|  Good|
Inventory turnover|  795/159=5| 10X|  Bad|
Fixed asset turnover|  795/147=5.4| 2X|  Good|
Total asset turnover|  795/450=1.76| 3X|  Bad|
Current ratio|  303/111=2.73| 2X|  Good|
Quick ratio|  303-159/111=1.29| 1.5X|  Bad|
Times interest earned|  49.5/4.5=11| 7X|  Good|
 
Analysis:
Return on assets is low than the industry average, it can be increased by a rapid turnover of assets. It can also be done by increasing more sales per dollar of its assets. Inventory turnover is lower than the industry average too. The more you turnover your inventory the more profit you make. Otherwise it is money just sitting there. Increasing sales and forecasting...
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