# Financial Ratios: Liquidity, Efficiency, Asset Turnover

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Modern Appliances Corporation has reported its financial results for the year ended December 31, 2011.

Modern Appliances Corporation

Income Statement for the Fiscal

Year Ended December 31, 2011

Net sales ............................................................ $5,398,412,000

Cost of goods sold ................................................ 3,432,925,255

Gross profit ......................................................... $1,965,486,745

Selling, general, and administrative expenses ................. 1,036,311,231

Depreciation ....................................................... 299,928,155

Operating income ................................................. $ 629,247,359

Interest expense ................................................... 35,826,000

EBT ................................................................. $ 593,421,359

Income taxes ...................................................... 163,104,554

Net earnings ........................................................ $ 430,316,805

Using the information from the financial statements, complete a comprehensive ratio analysis for

Modern Appliances Corporation.

a. Calculate these liquidity ratios: current and quick ratios.

b. Calculate these efficiency ratios: inventory turnover, accounts receivable turnover, DSO.

c. Calculate these asset turnover ratios: total asset turnover, fixed asset turnover.

d. Calculate these leverage ratios: total debt ratio, debt-to-equity ratio, equity multiplier.

e. Calculate these coverage ratios: times interest earned, cash coverage.

f. Calculate these profitability ratios: gross profit margin, net profit margin, ROA, ROE.

g. Use the DuPont identity, and after calculating the component ratios, compute the ROE for this firm.

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##### Solution Summary

The solution gives detailed steps on calculating a series of financial ratios from the income statement: liquidity ratios, efficiency ratios, asset turnover ratios, leverage ratios, coverage ratios, profitability ratios, component ratios and ROE. All formula and calculations are shown and explained in steps.

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a. current ratio = Current assets/Current liabilities = $2,856,516,992/$1,578,337,233 = 1.81

quick ratio = (Current assets-Inventory)/Current liabilities = （$2,856,516,992-981,870,990）/$1,578,337,233 = 1.19

b. inventory turnover = Cost of goods sold/Inventory = 3,432,925,255/981,870,990 = 3.50

accounts receivable turnover = sales/ccounts receivable = ...

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