Interpreting Financial Ratios

Topics: Financial ratios, Financial ratio, Generally Accepted Accounting Principles Pages: 4 (373 words) Published: August 21, 2014


Checkpoint # 2

Interpreting Financial Ratios


From what I have read and gathered; over the past (3) three years, Luna Lighting

financials does have the possibility to expand within the next few years. The companies

average collection period on money has decreased in the last three years and is better than

industry average. The inventory turnover rate has maintained at steady level and is in line

with industry average. The fixed assets turnover rate has decreased and is well below

industry average. The total asset turnover has gone down below the industry average. The

Debt ratio which is total debt/total assets for all three years is 50%. The debt ratio is a little

lower than the company average which is good. With this information the company would

be able to meet their debt requirements. Time interest earned is operating profit-interest

expense is higher than the industry average by 1.1. The fixed charge coverage has

decreased in the last three years and is 1.1 lower than the industry average.

The fixed coverage charge ratio measures the payments with the leases and refers to the

rent expense in the annual reports, being lower then industry average is a good sign. The

gross profit margin has remained consistent for the last three years and is 3% higher than

industry average, another good sign that the company is earning money. The operating

profit margin is lower than industry average, this would make me want to look and see if

there have been cut backs and what has brought down the cost because it was significantly

higher in previous years. The net profit margin is also lower than the industry average and

this would lead me to believe something is going on and needs to be looked into because

the gross was so much better. The return on assets and return on equity fall way below the...

References: CheckPoint assignment, Interpreting Financial Ratios, which is due on Thursday, Day 4.
Complete problem 6.2 on page 230 (Chapter 6).  Submit your answer in 200 to 300 words.
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