Explain the question and answer

Ratio analysis help us to know about the liquidity, profitability and operational efficiency of a company.

Data for the problem:

Sales $27,000,000

Cost of sales $19,000,000

Net profit $450,000

Inventory $600,000

Current liabilities $500,000

Other current Assets $660,000

Fixed assets $1,240,000

Net worth $1,200,000

Debt $700,000

Solve the ratios:

A. Gross profit

B. Return to Total Assets

C. Net profit D. Inventory Turnover

E. Net worth to debt

F. Working capital turnover

ANSWER:

A. Gross profit = (Gross profit/ sales) *100

Gross Profit = sales-Cost of sales = $27,000,000- $19,000,000

= $8,000,000 Ratio = ($8,000,000/ 27,000,000) *100

= 29.62

B. Return to total assets = Netprofit/ Total assets

Total Assets = Fixed assets + Current assets + Inventory

= $1,240,000 + $660,000 + $600,000

= $2,500,000

= ($450,000/ $2,500,000) *100

= 18%

C. Net profit ratio = Net profit/ sales = ($450,000/ $27,000,000) *100 = 1.6 times

D. Inventory Turnover = Turnover/ total assets = $27,000,000/ $2,500,000 = 10.8 Times

E. Net worth to debt = Net worth/ debt = $1,200,000/ $700,000 = 1.71 times

F. Working capital turnover = Turnover / Working capital Working Capital = Current Assets - Current Liabilities Current Assets = Other current assets + inventory = $660,000 + $600,000 = $1,260,000 Working Capital = $1,260,000 - $500,000 = $760,000 Working Capital turnover = $27,000,000/ $76