Make Analysis into an evaluation of the firm’s liquidity, activity, debt, profitability and market ratios.Historical and Industry Average RatiosHTS Software , Inc. IndustryRatio201020112011Liquidity Ratios Current Ratio2.62.082.7Quick Ratio1.81.321.75Activity Ratios Inventory Turnover4.53.004.7Average Collection Period40days53days42 daysTotal Asset Turnover1.20.801Debt Ratios Debt Ratio20%28%21%Times Interest Earned968.9Profitability Ratios Gross Profit Margin43%43%44%Operating Profit Margin30%26%32%Net Profit Margin20%17%21%Return on total assets12%14%13%Return on Equity15%19%16%Market Ratios Price/Earnings Ratio7.34.48

Ratio analysis: Ratio analysis can be defined as the qualitative method used for the purpose of…

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Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter15: Financial Statement Analysis

Section: Chapter Questions

Problem 6MCQ

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Make Analysis into an evaluation of the firm’s liquidity, activity, debt, profitability and market ratios.

Historical and Industry Average Ratios
HTS Software , Inc.
			Industry
Ratio	2010	2011	2011
Liquidity Ratios
Current Ratio	2.6	2.08	2.7
Quick Ratio	1.8	1.32	1.75
Activity Ratios
Inventory Turnover	4.5	3.00	4.7
Average Collection Period	40days	53days	42 days
Total Asset Turnover	1.2	0.80	1
Debt Ratios
Debt Ratio	20%	28%	21%
Times Interest Earned	9	6	8.9
Profitability Ratios
Gross Profit Margin	43%	43%	44%
Operating Profit Margin	30%	26%	32%
Net Profit Margin	20%	17%	21%
Return on total assets	12%	14%	13%
Return on Equity	15%	19%	16%
Market Ratios
Price/Earnings Ratio	7.3	4.4	8

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