Day 5 - Practice

Practice

Below are various figures that relate to Company B’s Income. Based on these figures, please calculate each ratio listed in the last section. 
  • For the return on assets ratio and the return on equity ratios, please only calculate using formula a. 
  • After calculating the ratio, please state whether or not the company is above, below or the same as the industry average in each area. 
  • Finally, please state whether you think Company B is healthy or doing poorly. Explain your reasoning. 
Company B
Sales (all on credit): $1,000,000
Net Income: $100,000
Total Assets: $1,000,000
Stockholder’s Equity: $500,000
Total Debt: $500,000
Accounts Receivable: $100,000
Average Daily Credit Sales: $10,000 
Inventory: $100,000
Fixed Assets: $200,000
Current Liabilities: $300,000
Current Assets: $400,000
Income Before Interest and Taxes: $150,000
Interest: $25,000
Income Before Fixed Charges and Taxes: $175,000
Fixed Charges: $50,000 

Industry Averages:
Profit Margin: 8%
Return on Assets: 10%
Return on Equity: 15%
Receivables Turnover: 12 times
Average Collection Period: 8 days
Inventory Turnover: 5 times
Fixed Asset Turnover: 7
Total Asset Turnover: .8
Current Ratio: 1.2
Quick Ratio:1.0
Debt to Total Assets: 30%
Times interest Earned: 5
Fixed Charge Coverage:3 


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