Question

Given the income statement and balance sheet for Medical Equipment Corporation, compute the ratios that are also shown for the industry average. For each ratio, indicate whether Medical Equipment Corporation is better (B) or worse (W) than the industry average. Show work

Income Statement

Sales (all credit)	$1,607,500
Less: Cost of goods sold	1,353,000
Gross profit	$254,500
Less: Selling and administrative expenses*	184,500
Operating profit (EBIT)	$70,000
Less: Interest expense	24,500
Earnings before taxes (EBT)	$45,500
Less taxes (40%)	18,200
Earnings after taxes (EAT)	$27,300

          

Balance Sheet

Cash	$77,500
Accounts receivable (net)	336,000
Inventory	241,500
Total current assets	$655,000
Net plant and equipment	292,500
Total Assets	$947,500
Current liabilities	330,000
Long-term liabilities	256,500
Total liabilities	586,500
Common stock	61,000
Retained earnings	300,000
Total stockholders’ equity	$361,000
Total liabilities and stockholders’ equity	$947,500

Ratio	Medical Equipment Corporation	Industry Average	Better (B) or    Worse (W)
Profit margin		1.2%
Return on assets		3.6%
Return on equity		9.0%
Average collection period		35 days
Inventory turnover		5.6x
Total asset turnover		3.0x
Current ratio		2.0
Debt to total assets		60.6%

Answer 1