Using the income statement and balance sheet presented here, compute the following ratios. Compare your results with the industry averages. What strengths and weaknesses are apparent?

Ratio Industry Average

Current ratio .............2:1

Acid test (quick ratio) ........1:1

Inventory turnover

a. Annual sales ...........4.03

b. Cost of goods sold .........2.33

Receivables turnover

a. Annual credit sales 5........ .03

b. Annual sales ...........6.03

c. Average collection period ...... 2.5 months

Ratio Industry Average

Operating profit margin .........26%

Net profit margin ............19%

Return on assets .............10%

Return on equity ............15%

Debt ratio

a. Debt/equity ..............33%

b. Debt/total assets ...........25%

Times-interest-earned ..........7.13

Income Statement for XYZ

for the period ending December 31, 20XX

Sales ............$100,000

Cost of goods sold ....... 60,000

Gross profit ........ 40,000

Selling and administrative expense .. 15,000

Operating profit ..... 25,000

Interest expense ....... 5,000

Earnings before taxes ....... 20,000

Taxes ............ 3,200

Earnings available to stockholders . $ 16,800

Number of shares outstanding ... 10,000

Earnings per share ........ $1.68

(To compute the inventory turnover, assume that the prior year's inventory was $40,000.)

Liabilities & Stockholders' Equity
Current liabilities
Accounts payable ..........$ 10,000
Accrued wages .......... 11,000
Bank notes .......... 15,000
Accrued interest payable ....... 4,000
Accrued taxes .......... 1,000
Total current liabilities ....... $ 41,000
Long-term debt ......... $ 15,000
Total liabilities .......... $ 56,000
Stockholders' equity
Common stock ($1 par value; 20,000 shares authorized;
10,000 shares outstanding) .......$ 10,000
Additional paid-in capital ....... 20,000
Retained earnings .......... 86,000
Total stockholders' equity ....... $116,000
Total liabilities and equity........$172,000

Transcribed Image Text:

Firm XYZ Balance Sheet as of December 31, 20XX Assets Current assets Cash and marketable securities Accounts receivable $10,000 32,000 2,000 Less allowance for doubtful accounts 30,000 Inventory Finished goods Work in progress Raw materials Total current assets Investments Long-term assets Plant and equipment Less accumulated depreciation Land Total long-term assets Total assets 30,000 5,000 7000 42,000 S 82,000 10,000 100,000 30,000 70,000 10,000 $ 80,000 $172,000