Question

Create a debt chart Analysis of Financial Statements

1 Then, calculate the current ratio, debt ratio, profit margin, and inventory turnover of the company.

2 Explain what each calculated ratio tells you about how well (or poorly) the company is performing .please type

Answer 1

Debt Chart :

Equity : 80000$

Reserves : 20000$

Long term borrowings (debentures ) : 80000$

Current Liabilities. : 50000$

Total. 230000$

Non current assets : 150000$

Current Assets. : 80000$

Total 230000$

Sales = 100000$

Profit = 20000$

Avg inventoy = 25000$

Ratio analysis :

Current Ratio = current assets ÷ current liabilities

Current Ratio = 80000$÷50000$ = 1.6

Debt Ratio = Total outside liabilities ÷ ( total debt + network )

Networth = Total assets - outside liabilities - current liabilities

Or It can be said networth = Equity capital and reserves and surplus

Debt Ratio = 80000$÷ ( 80000$+100000$ )

= 0.45

Profit margin = profit ÷ sales

= 20000$÷100000$

Profit margin = 20%

Inventory turnover = sales ÷ Avg inventory

= 100000$÷ 25000$

Inventory turnover ratio = 4times.

2.Comment on above ratios

Current Ratios : A simple measure that estimates whether the Bussiness can pay short term debts. Ideal ratio is 2:1

Debt Ratio : It is an indicator of use of outside funds.

Profit margin : it is the relationship between net profit and sales of the bussiness.

Inventory turnover ratio : It measures the efficiency of the firm to manage it's inventory.