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    Calculate the key financial ratios for Strident Marks

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    Strident Marks, Inc.
    Income Statement
    For the Year Ended December 31, 2006

    Revenue
    Net Sales 8,994,000
    Cost of Goods Sold 3,759,600
    Gross Margin 5,234,400

    Expenses
    Selling General & Administrative 1,245,900
    Depreciation Expense 350,000 1,595,900
    Income Before Interest and Taxes 3,638,500
    Interest Expense 250,000
    Income Before Taxes 3,388,500
    Income Tax Expense 1,016,550
    Net Income 2,371,950

    Beginning Retained Earnings 1,500,000
    Dividends 2,400,000
    Ending Retained Earnings 1,471,950

    Second Page

    Strident Marks, Inc.
    Balance Sheet
    December 31, 2006

    Assets

    Current Assets
    Cash 1,336,950
    Accounts Receivable 900,000
    Inventories 7,500,000
    Total current assets 9,736,950

    Property, Plant & Equipment 625,000
    less Accumulated Depreciation 111,000
    Net Property, Plant & Equipment 514,000

    Total Assets 10,250,950

    Liabilities & Shareholder's Equity

    Accounts Payable 420,000
    Accrued Liabilities 484,000
    Interest Payable 2,500,000
    Income Taxes Payable 900,000
    Dividends Payable 2,400,000
    Total current liabilities 6,704,000

    Long-term debt 1,750,000
    Total liabilities 8,454,000

    Common stock at par 425,000
    Retained Earnings 1,471,950
    Treasury stock - at cost -100,000
    Total Shareholders Equity 1,796,950

    Total liabilities and shareholders equity 10,250,950

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    In financial analysis, we need qualitative information and try to read between the numbers. Ratio analysis can also help us to check whether a business is doing better this year than it was last year; and it can tell us if our business is doing better or worse than other businesses doing and selling the same things. In other words it helps in inter firm and intra firm comparison.
    We can use ratio analysis to try to tell us whether the business

    1. Is profitable
    2. Has enough money to pay its bills
    3. Could be paying its employees higher wages
    4. Is paying its share of tax
    5. Is using its assets efficiently
    6. Has a gearing problem
    7. Is a candidate for being bought by another company or investor
    (www.bized.ac.uk)

    The following ratios will help in knowing the stability:

    Debt Management ratios measure the utilization of ...

    Solution Summary

    The solution calculates the financial ratios for Strident Marks Inc based on their income statement.

    $2.49

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