Ratio Analysis

You may use excel or word.doc format for this assignment.

1. Analysis of cost of goods sold problem.

1992 1993 1994

Gross Profit Margin 60% 55% 51%

What is happening to cost of goods sold? Assume sales of 1 dollar each year as you do your analysis. You need to show the cost of goods as pennies per dollar of sales.  This problem follows the process and format shown in the ratio analysis online lecture section titled: “Another Income Statement Analytical Approach: Percent of Sales” Sales assumed as 1 dollar, cost of goods and gross profit margin, expressed as pennies per dollar of sales should be shown.

(10 points)

2. Overhead (or Sales, General and Administrative Expense) problem.

1992 1993 1994

Gross Profit Margin 40% 39% 41%

Operating Margin (NOI/Sales) 15% 10% 5%

What is happening to S,G and A (or overhead expenses)? Please set up an illustration assuming sales of 1.00 dollar each year just as you did in problem number one. You need to show cost of goods and S,G and A (or overhead expenses) as pennies per dollar of sales.

(10 points)

3. Balance Sheet Problem

1992 1993 1994

Annual Sales Growth (over prior yr) + 1% 0% +1%

Current Ratio 3.5X 2X 1.2X

Average Collection Period 25 days 30 days 55 days

What is happening to liquidity? What are some follow-up questions your would ask? (10 points)

4. Using the data provided below, which is the better managed company? Why? Please support your answers by calculating appropriate ratios. You can find the ratios and formulas for these ratios in the week one online lecture on ratio analysis. (10 points)

Company A Company B

Sales 10 million dollars 20 million dollars

Net Income 1 million dollars 2 million dollars

Total Assets 10 million dollars 15 million dollars