Question

FINANCIAL ANALYSIS

Consider the following statistics (calculated based on simple ratios with only same year data and no averaging or past year data) to answer the questions:

Total Asset = $100,000, Working Capital ratio = 1.5:1, ROE = 22%, Gross Profit Margin = 15%, Quick ratio = 0.3:1, Cost of Goods Sold = $10,000; All other expenses = $5000

A) By showing working, state what is ROA?

B) By showing working state what is the debt ratio?

C) What is the net worth of the business?

D) By showing working, what is return on sales?

Comment on the following:

i) Profitability status

ii) Liquidity Status

iii) Inventory levels

iv) Current assets excluding inventory

v) Likely cash position

Answer 1

Answer- D:

    Now Gross profit margin is 15%, it Means, COGS is 85% of Sales;

   So Net Sales = 10,000 / 85% = $11764.70

    Net Profit/ Loss = 11764.70 – 10,000 – 5,000 = ($3,235.29)

      Return on Sales = -3,235.29 / 11,764.70 = (27.50)%

Answer- A:

Return on Assets = Net Loss / Total Assets

    = -3,235.29 / 100,000 = 3.235%

Answer- C:

       ROE = 22%

        22% = (3,235.29)/Equity

        Equity = $14705.86

Answer- B:

  Debt Ratio = Total Debt/ Total Assets

      Debt is = Total Assets – Equity = 100,000 – 14705.86 = $85,294.14

                       = 85,294.14 / 100,000 = 85.29%

Comments:

1. Entity is in loss. Loss for the year is 3,235.29

2. Liquidity Status: we need the figure of inventory to complete the rest portion of question..