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Financial Analysis of Stud Clothier

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.


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.