Question

Refer to the information below for XYZ Corporation for the problems below.

Balance Sheet

2007                2008

Cash                                                                9,000             500

A/R                                                                 12,500             16,000

Inventories                                                      29,000             45,500

Total Current Assets                                       50,500            62,000

Land                                                                20,000             26,000

Plant & Equipment                                         70,000             100,000

Less Accumulated Depreciation                     (28,000)         (38,000)

Total Fixed Assets                                          62,000             88,000

Total Assets                                                   112,500           150,000

Accounts Payable                                           6,500               17,000

Accrued Expenses                                          4,000               5,000

Short Term Bank Notes                                  17,000             47,000

Total Current Liabilities                                 27,500             69,000

Long-term Debt                                              28,750             22,950

Common Stock                                               31,500             31,500

Retained Earnings                                           24,750             26,450

Total Debt & Equity                                     112,500           150,000

Income Statement 2008

Sales                                                                160,000

COGS                                                             96,000

Gross Profit                                                     64,000

Operating Expenses

Fixed Cash Operating Expenses                     21,000

Variable Operating Expenses                         16,000

Depreciation                                                   10,000

Total Operating Expenses                               47,000

Earnings before Interest & Taxes (NOI)        17,000

Interest Expense                                              6,100

Earnings Before Taxes                                   10,900

Income Tax                                                     3,900

Net Income                                                     7,000

Compute and EXPLAIN THE MEANING of the following ratios for the year 2008:

1. Current Ratio

2. Quick Ratio

3. Inventory Turnover

4. Total Asset Turnover

5. Debt Ratio

6. DSO

7. ROE

8. Operating Margin

9. Profit Margin

10. TIE

Answer 1

Current Ratio = Current Assets/Current Liabilities =62000/69000 =0.90
Quick Ratio =  (Current Assets-Inventories)/Current Liabilities=(62000-45500)/69000 =0.24
Inventory Turnover =COGS/Inventory =96000/45500=2.11
Total Assets Turnover =Sales/Total Assets =160000/150000=1.07
Debt Ratio =Total Liabilities/Total assets =(69000+22950)/150000=0.61
DSO =account receivables/ (annual sales/365)=16000/(160000/365) =36,5
ROE =Net Income/Equity =7000/57950=0.12
Operating Margin =EBIT/Sales =17000/160000=0.11
Profit Margin =Net Income/Sales=7000/57950=0.12
TIE =EBIT/Interest =17000/6100=2.79

Based on Quick Ratio and Current ratio it is known that liquidity of the corporation is less.
Based on inventory turnover and total asset turnover the operational efficiency is good.
Debt ratio is low as leverage ratio is less.
The Profit margin is good based on ROE, operating margin and profit margin.
Based on TIE we know it has debt repaying capacity as it is greater than 1.