The Clothes Clutch, a retail clothier, has had average sales of $400,000 for the last five years, 2018-2022. The firm's total assets at the end of 2020 were $400,000. An internal staff cost analyst has prepared the following financial data from the annual reports. You have been hired as a consultant to help analyze the financial position. 2022 2021202020192018Current Ratio2.80 2.43 2.36 2.10 2.00 Acid Test Ratio2.03 1.93 1.82 1.61 1.47 Days' Sales in Receivables61 58 54 42 35 Merchandise Inventory Turnover4.20 4.10 4.10 3.90 3.70 Debt Ratio0.48 0.50 0.49 0.47 0.47 Times Interest Earned4.60 4.80 5.90 5.70 6.00 Sales as a Percent of 1996 Sales1.46 1.23 1.12 1.06 1.00 Net Income as a Percent of 1998 Income1.31 1.20 1.10 1.06 1.00 Gross Profit Margin38.5%38.8%38.9%40.0%39.7%Operating Expenses to Net Sales11.4%11.3%11.5%11.4%11.7%Net Profit Margin7.6%8.6%8.9%9.4%9.3%Return on Total Assets9.4%9.6%9.6%10.0%10.7%Briefly describe the trend in the long-term, debt-paying ability of The Clothes Clutch. Explain the cause(s) of this trend.

Times interest earned also known as interest coverage ratio indicates how often the interest charges…

Answered: The Clothes Clutch, a retail clothier,…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter3: Evaluation Of Financial Performance

Section: Chapter Questions

Problem 14P

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The Clothes Clutch, a retail clothier, has had average sales of $400,000 for the last five years, 2018-2022. The firm's total assets at the end of 2020 were $400,000. An internal staff cost analyst has prepared the following financial data from the annual reports. You have been hired as a consultant to help analyze the financial position.

	2022	2021	2020	2019	2018
Current Ratio	2.80	2.43	2.36	2.10	2.00
Acid Test Ratio	2.03	1.93	1.82	1.61	1.47
Days' Sales in Receivables	61	58	54	42	35
Merchandise Inventory Turnover	4.20	4.10	4.10	3.90	3.70
Debt Ratio	0.48	0.50	0.49	0.47	0.47
Times Interest Earned	4.60	4.80	5.90	5.70	6.00
Sales as a Percent of 1996 Sales	1.46	1.23	1.12	1.06	1.00
Net Income as a Percent of 1998 Income	1.31	1.20	1.10	1.06	1.00
Gross Profit Margin	38.5%	38.8%	38.9%	40.0%	39.7%
Operating Expenses to Net Sales	11.4%	11.3%	11.5%	11.4%	11.7%
Net Profit Margin	7.6%	8.6%	8.9%	9.4%	9.3%
Return on Total Assets	9.4%	9.6%	9.6%	10.0%	10.7%

Briefly describe the trend in the long-term, debt-paying ability of The Clothes Clutch. Explain the cause(s) of this trend.

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