19 Jul The financial statements and industry standard ratios for a hypothetical firm are listed in the template and below. Use these to complete the Ratio Analysis in the template.FIN1000_Mod0
The financial statements and industry standard ratios for a hypothetical firm are listed in the template and below. Use these to complete the Ratio Analysis in the template.
Ratio Analysis
| RATIO ANALYSIS | |||||
| 1) Ratios | 2) Grade | ||||
| Industry Standards | 2019 | 2020 | 2019 | 2020 | |
| Liquidity ratios: | |||||
| Current ratio | 5.00 | Good | |||
| Quick ratio | 3.00 | Poor | |||
| Activity ratios: | |||||
| Inventory turnover | 2.20 | ||||
| Days sales outstanding | 90.00 | ||||
| Fixed asset turnover | 1.00 | ||||
| Total asset turnover | 0.75 | ||||
| Profitability ratios: | |||||
| Gross profit margin | |||||
| Operating profit margin | 20% | ||||
| Return on equity | 9% | ||||
| Leverage ratios: | |||||
| Debt ratio | 0.33 | ||||
| Coverage ratios: | |||||
| Times-interest-earned | 7.00 | ||||
| DATA | |||||
| Balance Sheet | 2019 | 2020 | |||
| Assets: | |||||
| Cash | $200 | $150 | |||
| Accts/Rec | 450 | 425 | |||
| Inventory | 550 | 625 | |||
| Current assets | 1,200 | 1,200 | |||
| Plant and equip. | 2,200 | 2,600 | |||
| Less: Acc dep | 1,000 | 1,200 | |||
| Net plant and equip. | 1,200 | 1,400 | |||
| Total assets | $2,400 | $2,600 | |||
| Liabilities and Owners' Equity: | 2019 | 2020 | |||
| Accts/Pay | $200 | $150 | |||
| Notes Pay-Current | 0 | 150 | |||
| Current liabilities | 200 | 300 | |||
| Bonds | 600 | 600 | |||
| Owners' equity | |||||
| Common stock | 300 | 300 | |||
| Paid-in Capital | 600 | 600 | |||
| Retained earnings | 700 | 800 | |||
| Total owners' equity | 1,600 | 1,700 | |||
| Total liabilities and owners' equity | |||||
| owners' equity | $2,400 | $2,600 | |||
| Income Statement: | 2019 | 2020 | |||
| Sales | $1,200 | $1,450 | |||
| COGS | 700 | 850 | |||
| Gross profit | 500 | 600 | |||
| Operating expenses | 30 | 40 | |||
| Depreciation | 220 | 200 | |||
| Net operating income | 250 | 360 | |||
| Interest expense | 50 | 64 | |||
| Net income before tax | 200 | 296 | |||
| Taxes (21%) | 42 | 62 | |||
| Net income | $158 | $234 | |||
Instructions: The financial statements and industry standard ratios are listed below for a hypothetical firm. Complete the blue section. 1) Compute the financial ratios for the firm (columns C and D). 2) Compare both 2019 and 2020 ratios to the industry standards (columns E and F). Label "Good" if the firm's ratio is favorable against the industry ratio. "Poor" if the ratio is unfavorable. See the examples in columns E and F. 3) Give a summary of the company's financial health. Is the company doing well financially? Why or why not? Use at least 3 data points to support your reasoning.
3) type in your answer here.
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