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    Spectrum's fianancial performance and ratio analysis

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    Utilizing the attached Enclosure 1 "Balance Sheet and Income Statement for Spectrum, Inc"
    a) Compute the following eight (8) financial ratios and provide a one sentence explanation of the analytic use of each ratio test. Show your formulas and input. Accuracy to two decimal points is sufficient.
    b) Evaluate how Spectrum's financial performance compares to their Industry for each calculated ratio. It is sufficient to rate each ratio as "G"= good, "S" = satisfactory, or "P" = poor.

    Industry Norms
    -1-- Current ratio 1.5
    -2-- Acid test ratio 1.06
    -3-- Debt Ratio 0.58
    -4-- Total asset turnover 1.18
    -5-Inventory Turnover 5.78
    -6-Operating Income Return on Investment 9.8%
    -7-- Operating profit margin 8.3%
    -8-- Times interest earned 3.93
    -9-- Average collection period* 75 days
    -10- Return on Equity 12%
    * ---Assume all sales are credit sales

    Spectrum, Inc.
    BALANCE SHEET (000).
    Cash ----------------------------------------------- $500
    Accounts receivable ---------------------------- 1,500
    Inventories ----------------------------------------- 500
    --- Current assets -------------------------------- 2,500
    Net fixed assets ---------------------------------- 5,000
    --- Total Assets -------------------------------- $7,500.
    .
    Accounts payable --------------------------------.1,200
    Bank note ------------------------------------------- 300
    --- Total current liabilities ---------------------- 1,500
    Long term debt ----------------------------------- 4,000
    Common stock ------------------------------------- 300
    Retained earnings -------------------------------- 1,700
    --- Total liabilities and owner's equity -----$7,500

    Spectrum, Inc.
    INCOME STATEMENT (000)

    Net sales ----------------------------------------- $8,500
    Cost of goods sold ------------------------------- 3,400
    ---Gross profit ------------------------------------ 5,100
    Operating expenses------------------------------- 2,900
    ---Net operating income ------------------------- 2,200
    Interest expense -------------------------------------580
    ---Earnings before taxes ------------------------- 1,620
    Income tax (34%) ------------------------------------551
    ---Net income ----------------------------------- $1,069

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    https://brainmass.com/business/financial-ratios/spectrum-s-fianancial-performance-and-ratio-analysis-238049

    Solution Summary

    Calculation and explanation of the ratios of Spectrum, Inc. and comparison with the industry ratio.

    $2.19

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