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Liquidity Ratios, Profitability Ratios, Asset Management Ratio

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Using the Income Statement and Balance Sheet attached calculate the following 10 ratios.

1. Current Ratio
2. Quick Ratio
3. Accounts Receivable Turnover
4. Average collection period
5. Inventory Turnover
6. Debt to total assets
7. Debt to stockholders' equity
8. Times interest earned
9. Gross profit rate
10. Return on sales

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GRIFFITH
RATIO ANALYSIS SOLUTION

LIQUIDITY RATIOS:
Current Ratio =

(Current Assets )/(Current Liabilities) = $48,000,000/$21,200,000 = 2.26 to 1

Quick Ratio

(Current Assets -Merchandise Inventory-Prepaid Expenses)/(Current Liabilities)

=($4,800,000- 2,416,000-80,000)/$2,120,000 = 1.09 to 1

LIQUIDITY - This firm does not appear to have liquidity problems. The current ratio is well over 1 and even the quick ratio is higher than 1. The firm has enough liquid resources to meet their short-term obligations.

ASSET MANAGEMENT RATIOS:

Accounts Receivable Turnover

(Net Credit Sales )/(Average Accounts Receivables)

Calculate the average accounts receivable by adding the receivables for the two years and dividing by two ($2,000,000 + 1,600,000)/2 = 1,800,000

= ...

Solution Summary

This solution contains an income statement and Balance Sheet of a company is used to do in depth ratio analysis. Includes liquidity ratios, profitability ratios, asset management ratios, debt management and explanations of results.

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