Question

In: Accounting

balance sheet 12/31/2014 12/31/2015 Assets Current Assets Cash in bank $     57,000 $    65,000 Accounts receivable         75,00

balance sheet

12/31/2014

12/31/2015

Assets

Current Assets

Cash in bank

$     57,000

$    65,000

Accounts receivable

        75,000

       82,000

Inventory

        66,000

       75,000

Prepaid expenses

          6,000

         8,000

Total Current Assets

$   204,000

$   230,000

Fixed Assets

Machinery & equipment

$     25,200

$    18,000

Total Fixed Assets (net of depreciation)

$     25,200

$    18,000

TOTAL Assets

$   229,200

$   248,000

Liabilities and Equity

Current Liabilities

Accounts payable

$     89,000

$    90,000

Total Current Liabilities

$     89,000

$    90,000

Long-term Debt

Bank loans payable

$     62,000

$    50,000

Total Long-term Debt

$     62,000

$    50,000

Total Liabilities

$   151,000

$   140,000

Owners' Equity

        78,200

     108,000

Total Liabilities & Equity

$   229,200

$   248,000

Task 1: Liquidity Analysis

Calculate the following ratios for Gerup Garments Inc. Write 100 words describing the company’s liquidity condition:

  • current ratio
  • quick ratio
  • accounts receivable turnover
  • days sales outstanding
  • inventory turnover
  • average days to sell inventory

Type your response here:

Task 2: Solvency Analysis

Calculate the following ratios for Raymond Garments Inc. Write 100 words describing the company’s solvency condition:

  • debt-to-assets ratio
  • debt-to-equity ratio
  • interest coverage ratio
  • plant assets to long-term liabilities

Task 3: Profitability Analysis

Calculate the following ratios for Raymond Garments Inc. Write 100 words describing the company’s profitability condition:

  • net margin ratio
  • asset turnover ratio
  • return on investment
  • return on equity
  • Task 4: Financial Analysis

Using your ratios, write 200 words describing the company’s overall financial condition.

Solutions

Expert Solution

Ratio calculation for the year 2015

Liquidity Analysis-

Current Ratio = Current Assets / Current Liabilities

Current Ratio: 230000 / 90000 = 2.55

Quick Ratio = (Cash in bank + Account receivable) / Current Liabilities

Quick Ratio = (65000 + 82000) / 90000

Quick ratio = 1.63

Account receivable turnover: Net credit sales is not given in the question to calculate A/R turnover ratio.

  • days sales outstanding
  • inventory turnover
  • average days to sell inventory

Cannot be calculated as sales is not given. Please provide Sales figure.

Liquidity Position- Company's liquidity position is very good, company has higher current ratio than 2, company has liquid assets in the form of cash and receivables that can be easily converted into cash.

Solvency Analysis-

Debt to asset ratio = Total Liabilities / Total Assets

Debt to asset ratio: 140000 / 248000 = .56

Debt to equity ratio = Total liabilities / Total Equity

Debt to equity ratio: 140000 / 108000 = 1.29

Solvency Position- Company's solvency position is average, it has lower debt to asset ratio but little higher debt to equity ratio. Higher debt to equity ratio is not good for company, it should be below 1, higher ratio indicates heavy amount of liabilities, liabilities bring interest burden and obligation.

Task 3: Profitability Analysis-

Net Margin Ratio = (Net profit margin / Net sales) * 100

Note: For profitability ratios, I need Net profit margin that is available in the Income statement and not in the balance sheet so please provide Income statement for calculating profitability ratios.

Many left ratios cannot be calculated due to non availability of some figures

ekkarill92 answered 2 years ago
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