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    Financial Analysis of Stud Clothier

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    Problem 17
    The balance sheet for Stud Clothiers is shown below. Sales for the year were $2,400,000, with 90 percent of sales sold on credit.
    Balance Sheet 200X
    Assets Liabilities and Equity

    Cash $ 60,000 Accounts payable $ 220,000
    Accounts receivable 240,000 Accrued taxes 30,000
    Inventory 350,000 Bonds payable (long-term) 150,000
    Plant and equipment 410,000 Common stock 80,000
    Paid-in capital 200,000
    Retained earnings 380,000
    Total assets $1,060,000 Total liabilities and equity $1,060,000

    Compute the following ratios:
    1) Current ratio:
    2) Quick ratio.
    3) Debt-to-total-assets ratio.
    4) Asset turnover.
    5) Average collection period.

    Problem 18
    Company has the following ratios compared to its industry for 2005.
    Acme Transportation Industry
    Return on assets 9% 6%
    Return on equity 12% 24%

    Explain why the return-on-equity ratio is so much less favorable than the return-on-assets ratio compared to the industry. No numbers are necessary; a one-sentence answer is all that is required.

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    Solution Preview

    1) Current Ratio=Current Assets/Current Liabilities=(Cash+Accounts Receivable+Inventory)/(Accounts Payable+Accrued Taxes)=$650,000/$250,000=2.6

    2) Quick Ratio=(Current Assets-Inventories)/Current ...

    Solution Summary

    The solution is a complete financial analysis for Stud Clothier.