Calculate and interpret the following ratios: Return on assets (ROA) Current ratio Days cash on hand Average collection period Debt ratio Debt-to-equity ratio Times interest earned (TIE) ratio Fixed asset turnover ratio Industry Average 5.2% 2.0 22 days 19 days 71% 2.5 2.6 1.4
Calculate and interpret the following ratios: Return on assets (ROA) Current ratio Days cash on hand Average collection period Debt ratio Debt-to-equity ratio Times interest earned (TIE) ratio Fixed asset turnover ratio Industry Average 5.2% 2.0 22 days 19 days 71% 2.5 2.6 1.4
Related questions
Question 7 of 21Financial ratio data is listed below forGallery of Dreams. Select the answers that are strengths for thefirm after analyzing the ratios.
(Points : 12) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventoryturnover is below industry average and is extremely low indicatingthe firm does not move inventory well
Profitability isexcellent with gross, operating and net profit margins aboveindustry average and increasing all years with the exception ofgross profit margin which decreased slightly in 2015
Interest is coveredby profits as are lease payments and the number of times coveredhas increased each year
The averagecollection period is increasing and is now above industryaverage
Current and quickratios are above industry average and increasing
Accounts payableare paid in a timely manner
Happy Hamburger Company
Below are the balance sheet and income statement for HappyHamburger Company.
Happy Hamburger Company | |||
Balance Sheet as of December 31, 20XX | |||
Assets | Liabilities and Shareholder Equity | ||
Cash | 78,000 | Accounts payable | 136,000 |
Accounts Receivable | 336,500 | Current portion of debt | 82,500 |
Inventories | 225,000 | Other current liabilities | 114,000 |
Total current assets | 639,500 | Total current liabilities | 332,500 |
Net fixed assets | 310,000 | Long-term debt | 252,000 |
Total assets | 949,500 | Total Liabilities | 584,500 |
Common equity | 365,000 | ||
Total Liabilities & Equity | 949,500 | ||
Happy Hamburger Company | |
Income Statement for the year ending December 31,20XX | |
Sales | 1,704,560 |
Cost of goods sold | 1,489,000 |
Selling, general and administrative expenses | 152,000 |
Earnings before interest and taxes (EBIT) | 63,560 |
Interest expense | 26,200 |
Earnings before taxes (EBT) | 37,360 |
Federal and state income taxes (40%) | 14,944 |
Net Income | 22,416 |
Required:
Calculate the following ratios for the company.
Explain whether the company is doing better or worse than theindustry average for each ratio.
Note: Formula must be provided foreach ratio
Happy | Industry | |
Current ratio |
| 1.7 |
Days sales outstanding (based on 365 day year) |
| 36 days |
Inventory turnover |
| 7.3 |
Fixed asset turnover |
| 12.1 |
Total asset turnover |
| 3.00 |
Return on sales |
| 3.20% |
Return on assets |
| 3.60% |
Return on equity |
| 9.00% |
Debt ratio |
| 71% |
