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Ratio Formula Calculation Industry Average Comment

The document provides calculations and comparisons to industry averages for 14 financial ratios of a company. Most of the company's ratios are below the industry averages, indicating low current ratio, quick ratio, inventory turnover, days sales outstanding, total assets turnover, times-interest-earned ratio, operating margin, profit margin, return on total assets, return on common equity, return on invested capital, and basic earning power. Only the fixed assets turnover ratio is close to the industry average.

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jay balmes
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2K views2 pages

Ratio Formula Calculation Industry Average Comment

The document provides calculations and comparisons to industry averages for 14 financial ratios of a company. Most of the company's ratios are below the industry averages, indicating low current ratio, quick ratio, inventory turnover, days sales outstanding, total assets turnover, times-interest-earned ratio, operating margin, profit margin, return on total assets, return on common equity, return on invested capital, and basic earning power. Only the fixed assets turnover ratio is close to the industry average.

Uploaded by

jay balmes
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Financial Ratios (14 items x 10 points)

Compute the following financial ratios and interpret the results (Low, High, OK) based on the given industry averages. Write your answers on the
spaces provided.

Ratio Formula Calculation Industry Comment


Average
Current ratio = Current Assets LOW
Current Current Liabilities 1,000,000 4.2
310,000= 3.23
LOW
Quick Quick ratio = 1,000,000−615,000 = 385,000 =1.24 2.2
Current Assets−Inventories 310,000310,000
Current LiabilitiesSales
Inventories LOW
Inventory turnover Inventory turnover ratio = 3,000,000 =4.88 10.9
615,000

Days Sales Outstanding = LOW


Days sales outstanding Receivables 375,000=45.63∨46 days 36 days
Annual Sales/ 365 3,000,000 /365
Fixed Assets Turnover = Net 3,000,000 =3.00 OK
Fixed assets turnover Ratio Sales Assets ¿ 1,000,000 2.8

Total Assets Turnover = Sales 3,000,000 = 1.5 LOW


Total assets turnover Ratio Total Assets 2,000,000 1.8

Total debt to total capital Total Debt To Total Debt 1,060,000 = 1,060,000 HIGH
Total Capital = Total Debt + Equity = 36.4%
1,060,000+ 940,000 2,000,000
53.00 %
Ratio Formula Calculation Industry Comment
Average
Times-Interest-Earned EBIT 283,800 =¿ 3.23 % LOW
Times-interest-earned Ratio= Interest Charges 88,000 6.0

Operating MarginE=BIT 283,800 =¿ 9.46 % LOW


Operating margin Sales 3,000,000 10.0%

Profit Margin =Net Income 117,500 =3.92 % LOW


Profit margin Sales 3,000,000 5.0%

Return on Total Assets = Net Income 117,500 =5.88 % LOW


Return on total assets Total Assets 2,000,00 9.0%

Return on Common Net Income 117,500 =12.50 % LOW


Return on common equity Equity = Common Equity 940,000 15.0%

Return on invested capital Return on Invested EBIT (1−T ) 283,800 (1−0.40) = 170,280 =1.31 % LOW
Capital = 130,000130,000 10.8%
Total Invested Capita
Basic Earning Power = EBIT 283,800 =14.19 % LOW
Basic earning power Total Assets 2,000,000 18.0%

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