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): $1,000,000Net Income: $100,000Total Assets: $1,000,000Stockholder’s Equity: $500,000Total Debt: $500,000Accounts Receivable: $100,000Average Daily Credit Sales: $10,000Inventory: $100,000Fixed Assets: $200,000Current Liabilities: $300,000Current Assets: $400,000Income Before Interest and Taxes: $150,000Interest: $25,000Income Before Fixed Charges and Taxes: $175,000Fixed Charges: $50,000
Industry Averages:
Profit Margin: 8%Return on Assets: 10%Return on Equity: 15%Receivables Turnover: 12 timesAverage Collection Period: 8 daysInventory Turnover: 5 timesFixed Asset Turnover: 7Total Asset Turnover: .8Current Ratio: 1.2Quick Ratio:1.0Debt to Total Assets: 30%Times interest Earned: 5Fixed Charge Coverage:3
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