# Financial Ratios and Gross Profit

Powerful Essays
5473 Words
Grammar
Plagiarism
Writing
Score
Financial Ratios and Gross Profit
1. What is the purpose of financial statement analysis? It show trends and relationships. These also help predict the future, show weaknesses, strengths. The ratios usually are compared to other companies within the industry and industry average to see where the company stands.

2. If a company had sales of \$2,587,643 in 1998 and sales of \$3,213,456 in 2003, by what percentage did sales change during this time period?

(3213456-2587643) /2587643 = 24.18%
a. If the company had a goal of increasing sales by 25% over a five-year period, did it meet its objectives? Almost met its objective but short by 0.82%
b. If the company had set a goal of increasing sales by 28% during the next five years, what should be the sales goal for 2008?128% (2587643) = 3312183

3. List and briefly describe the five categories of business ratios.
Financial ratios can be divided into five categories: * Liquidity (Solvency) ratios * Financial Leverage (Debt) ratios * Asset Efficiency (Management or turnover) ratios * Profitability ratios * Market value ratios
The liquidity or solvency ratios focus on a firm's ability to pay its short-term debt obligations. As such, they focus on the firm's current assets and current liabilities on the balance sheet.
The most common liquidity ratios are the current ratio, the quick ratio, and the burn rate (interval measure).
The financial leverage or debt ratios focus on a firm's ability to meet its long-term debt obligations. It looks at the firm's long term liabilities on the balance sheet such as bonds.
The most common financial leverage ratios are the total debt ratios, the debt/equity ratio, the long-term debt ratio, the times interest earned ratio, the fixed charge coverage ratio, and the cash coverage ratio.
The asset efficiency or turnover ratios measure the efficiency with which the firm uses its assets to produce sales. As a

## You May Also Find These Documents Helpful

• Satisfactory Essays

1) Ed’s is a small deli, which has had great success in its second year of operation. Revenues in Year 2 are \$570,000, compared with \$380,000 in Year 1. What is Ed’s year-over-year sales growth rate?…

• 321 Words
• 2 Pages
Satisfactory Essays
• Good Essays

Assets management measures are sometimes called asset utilization ratios. The specific ratios are intended to measure is how efficiently, or intensively, a firm uses its assets to…

• 828 Words
• 3 Pages
Good Essays
• Satisfactory Essays

Your finance text book sold 53,250 copies in its first year. The publishing company expects the sales to grow at a rate of 20 percent for the next three years, and by 10 percent in the fourth year. Calculate the total number of copies that the publisher expects to sell in year 3 and 4. (If you solve this problem with algebra round intermediate calculations to 6 decimal places, in all cases round your final answers to the nearest whole number.)…

• 563 Words
• 4 Pages
Satisfactory Essays
• Satisfactory Essays

3. Stan is a real estate salesperson. He receives 60% of 5% commission that the real estate agency charges on sales. If his income for the past year was \$84,000, what was his dollar volume of sales for the year?…

• 513 Words
• 2 Pages
Satisfactory Essays
• Better Essays

Financial ratios are designed to extract important information that might not be obvious simply from examining a firm’s financial statements. Financial statement analysis involves comparing a firm’s performance with that of other firms in the same industry and evaluating trend in the firm’s financial position over time.…

• 1372 Words
• 6 Pages
Better Essays
• Satisfactory Essays

LIQUIDITY RATIOS measure the short-term ability of the enterprise to pay its maturing obligations and to meet unexpected needs for cash. Short-term creditors such as bankers and suppliers are particularly interested…

• 435 Words
• 2 Pages
Satisfactory Essays
• Better Essays

Liquidity ratios, such as the current, quick, and cash ratios provide insight into a firm’s ability to pay back its short-term liabilities (debts and payables) with its short-term assets (with cash, inventory, and receivables). For example, the current ratio tells you “how much in assets a company has in comparison to its liabilities” (Stocks Simplified, n.d.). The higher the ratio, the more a company is generally considered to be capable of paying off its obligations, if they came due at that particular point in time.…

• 1638 Words
• 7 Pages
Better Essays
• Good Essays

7. A major US city reports a 12% increase in decoration sales during the yearly holiday season. If decoration sales were 8 million in 1998, how much did the city report in total decoration sales by the end of 2004?(1 point)…

• 378 Words
• 2 Pages
Good Essays
• Satisfactory Essays

Question 1 - Determine the year-to-year percentage annual growth in total net sales Year Sales Growth 2000 \$11,062 2001 \$11,933 (11933-11062)*100/11062 = 7.87% 2002 \$9,181 (9181-11933)*100/11933 = -23.06% 2003 \$6,141 = -33.11% 2004 \$8,334 = 35.71% - Based only on your answer to question #1, do you think the company will hit its sales goal of +10% annual revenue growth in 2005?…

• 731 Words
• 3 Pages
Satisfactory Essays
• Powerful Essays

1. Profitability Ratio - Profitability ratios measure the firm 's use of its assets and control of its…

• 1541 Words
• 7 Pages
Powerful Essays
• Satisfactory Essays

4. If the firm holds the sales price constant and makes the suggested changes, how many units of product will the company have to sell to make the same net income as last year?…

• 430 Words
• 2 Pages
Satisfactory Essays
• Good Essays

The return on assets ratio measures the profit earned by a corporation through use of all its capital, or the total of the investment by both creditors and owners. Profit, or return, is determined by adding interest expense net of tax to net income.…

• 475 Words
• 2 Pages
Good Essays
• Powerful Essays

Warning! • Standardize numbers; facilitate comparisons • Be careful not to infer too much from a ratio • The most common comparison norms are: • Accounting discretion makes a difference – Changes often affect multiple ratios differently – Approaches to loan loss expenses & write-offs – Past performance – Oth banks (peer or “target” banks; industry (or Other b k ( “t…

• 3428 Words
• 84 Pages
Powerful Essays
• Satisfactory Essays

The Ideal Ratio is 2:1.The solvency position of thecompany is satisfactory but it should decrease theloans such as secured and unsecured. It shouldincrease the reserves and share capital also.…

• 574 Words
• 3 Pages
Satisfactory Essays
• Satisfactory Essays

How the firm has financed its assets as well as the firm’s ability to repay its…

• 2204 Words
• 17 Pages
Satisfactory Essays