Question

1.Use financial statements that are in the attached document to calculate the financial ratios presented.
2. Prepare and interpret an analysis of the financial ratios showing the company.
3. Summarize the findings and make recommendations.
4. Du Pont method is used to determine the return on equity. This result tells us?

Zumba Production Inc.

Income Statement

Year Ended December 31,2017

Sales			$160,000
Cost of Goods Solds:
Merchandise Inventory, Jan 1,2013		$208,400
Purchases (net)		37,320
Goods Available for Sale		$171,080
Merchandise Inventory, Dec. 31, 2013		65,080
Cost of Goods Sold			106,000
Gross Profit			$54,000
Operating Expenses			37,000
Income from Operations			$17,000
Other Income and Expense:
Interest Expense			6,1000
Income before Tax			$10,900
Income Tax Expense			4,360
Net Income			$6,540

Zumba Production Inc.

Balance Sheet

Year Ended December 31, 2017

Cash		$500
Marketable Securities		1,000
Accounts Receivable		25,000
Merchandise Inventory		45,500
Property, Plant, and Equipment (net)		60,000
Furniture and Fixtures		18,000
Total Assets		$150,000
Accounts Payable		$22,000
Notes Payable		40,000
Accrued Salaries Payable		7,000
Long-Term Debt		22,950
Common Stock ($10-par)		31,500
Retained Earnings		26,550
Total Liabilities and Stockholders Equity		$150,000

The following financial ratios are presented according to the market where it competes Zumba Production Inc.

Ratio	Market	Zumba Production
a. Current ratio	1.80
b. Quick ratio	0.70
c. Inventory turnover *	2.50
d. Average collection period *	37.5 days
e. Debt ratio	65%
f. Times interest earned ratio	3.80
g. Gross profit margin	38%
h. Net profit margin	3.50%
i. Return on total sales	4.00%
j. Return on common equity	9.50%
k. Market/ Book ratio	1.10
l. Working Capital	$5,000
*Based on 365 days a year