Question

	Ratio analysis: Refer to the information above for Nederland Consumer Products Company. Compute the firm’s ratios for the following categories and briefly evaluate the company’s performance from these numbers.
	a.     Efficiency ratios
	b.     Asset turnover ratios
	c.     Leverage ratios
	d.     Coverage ratios
		Nederland Consumer Products Company
		Income Statement for the Fiscal Year
		Ended September 30, 2014
		Net sales	$51,407
		Cost of products sold	$25,076
		Gross margin	$26,331
		Marketing, research, administrative exp.	$15,746
		Depreciation	$758
		Operating income (loss)	$9,827
		Interest expense	$629
		Other nonoperating income (expense), net	$152
		Earnings (loss) before income taxes	$9,350
		Income taxes	$2,869
		Net earnings (loss)	$6,481
		Nederland Consumer Product Company
		Balance Sheet as of September 30, 2014
		Assets:			Liabilities and Equity:
		Cash and cash equivalents	$5,469		Accounts payable	$3,617
		Investment securities	423		Accrued and other liabilities	7,689
		Accounts receivable	4,062		Taxes payable	2,554
		Inventory	4,400		Debt due within one year	8,287
		Deferred income taxes	958		Total current liabilities	$22,147
		Prepaid expenses and other receivables	1,803		Long-term debt	12,554
		Total current assets	$17,115		Deferred income taxes	2,261
		Property, plant, and equipment, at cost	25,304		Other noncurrent liabilities	2,808
		Less: Accumulated depreciation	11,196		Total liabilities	$39,770
		Net property, plant, and equipment	$14,108		Convertible class A preferred stock	1,526
		Net goodwill and other intangible assets	23,900		Common stock	2,141
		Other noncurrent assets	1,925		Retained earnings	13,611
					Total shareholders' equity (deficit)	$17,278
		Total assets	$57,048		Total liabilites and shareholders' equity	$57,048

Answer 1

a.     Efficiency ratios:

Inventory tunrnover ratio = cost of goods sold / inventory

= $25,076 / $4,400

= 5.70

days sales inventory = 365 /   Inventory tunrnover ratio

= 365 / 5.70

= 64.04 days

Accounts receivable turnover = net sales / Accounts receivable

=$51,407 / 4062

= 12.66

days sale outstanding = 365 / Accounts receivable turnover

= 365 / 12.66

=28.83 days

b.     Asset turnover ratios

Total assets turnover = net sales / total assets

=$51,407  / $57,048

= 0.9

Fixed Asset turnover ratios = net sales / Net property, plant, and equipment

= $51,407  / 14108

= 3.64

c.     Leverage ratios :

Debt-equity ratio =Total liabilities / Total shareholders' equity

=$39,770 / $17,278

=2.30

Total debt ratio =Total liabilities / Total assets

=$39,770 / $57,048

=0.70

Equity multiplier ratio =Total assets / Total equity

= $57048 / $17278

= 3.30

d.     Coverage ratios

  Interest coverage ratio = operating income / interest expense

= $9,827 / $629

=15.62

Cash coverage ratio = [operating income + depreciation] / interest expense

= 10585 / $629

= 16.83