Problem 2

Given the balance sheet and income statement for Diagnostics Corporation of America, compute the ratios that are also shown for the industry average. For each ratio, indicate whether Diagnostics Corporation of America is better or worse than the industry average. (SHOW YOUR WORK)

Diagnostics Corporation of America

Balance Sheet

Assets: Liabilities

Cash $15,000 Accounts Payable $21,000

Accts. Receivable 22,000 Notes Payable 20,000

Inventory 30,000 Accrued Expenses 5,000

Current Assets 67,000 Current Liabilities 46,000

Net Fixed Assets 73,000 Long-term Debt 30,000

Stockholders Equity 64,000

Total Assets $140,000 Total Liab and Stockholders Equity $140,000

Income Statement

Sales (80% credit) $120,000

Less: Cost of Goods Sold 45,000

Gross Profit 75,000

Selling and Administrative Expense 20,000

Rent expense (lease) 8,000

EBIT 47,000

Interest Expense 5,000

Earnings before taxes 42,000

Taxes (25%) 10,500

Net Income $ 31,500

Common share outstanding 15,000

EPS $ 2.10

Ratio	Diagnostics Corporation of America	Industry Average	Better (B) or Worse (W)
Profit margin		17.5%
Return on assets		20.8%
Return on equity		35%
Receivable turnover		4.4x
Average collection period		68 days
Inventory turnover		3.5x
Fixed asset turnover		2.4x
Total asset turnover		0.76x
Current ratio		1.28
Quick ratio		0.85
Debt to total assets		0.45
Times interest earned		12.0x