Question

In: Finance

Given the income statement and balance sheet for Medical Equipment Corporation, compute the ratios that are...

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%

Solutions

Expert Solution


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