Complete the balance sheet and sales data (fill in the blanks), using the following financial data:
You have been asked by your CEO to evaluate, analyse and calculate commonly used ratios relating to a company’s profitability, liquidity, solvency and management efficiency.
Requirement:
a. Complete the balance sheet and sales data (fill in the blanks), using the following financial data:
Debt/net worth 60%
Acid test ratio 1.2
Asset turnover 1.5 times
Day sales outstanding in accounts receivable 40 days
Gross profit margin 30%
Inventory turnover 6 times
Balance sheet
Cash ________ Accounts payable ________
Accounts receivable ________ Common stock RM15,000
Inventories ________
Plant & equipment ________
Total assets ________ Total liabilities ________
& capital
Sales ________
Cost of goods sold ________
b. Explain how do analysts use ratios to analyse a firm’s leverage? Which ratios convey more important information to a credit analyst those revolving around the levels of indebtedness or those measuring the ability to service debt? What is the relationship between a firm’s level of indebtedness and risk? What must happen in order for an increase in leverage to be successful? Discuss and illustrate all your answer.
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