FINANCIAL ACCT-CONNECT
FINANCIAL ACCT-CONNECT
8th Edition
ISBN: 9781266627903
Author: Wild
Publisher: INTER MCG
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Methodology:• Based on the above information the consulting group will conduct ratio analysis for the following ratios:o Current ratio o Receivable’s turnover o Times’s interest earned o Profit margin o Days in inventory o Return on assets o Cash current debt coverage ratio • As a next step the group will compare the ratios calculated above with industry benchmarks. The benchmarks are indicated within brackets besides each ratio.o Current ratio (3 to 1) o Receivable’s turnover (13 times) o Times’s interest earned (9 times) o Profit margin (12%) o Days in inventory (50 days) o Return on assets (12%) o Cash current debt coverage ratio (2 times
36 Ratio Analysis - Explain how the following ratios are calculated and what the ratio indicates. Include how these ratios provide useful information related to accounting decision making topics such as efficiency (collecting amounts owed to the firm, using the assets well, getting items to market, etc.), liquidity (ability to pay current debts), solvency (ability to pay long term or all debts) Asset Turnover Return on Assets Current Ratio Accounts Receivable Turnover Average Collection Period Debt Ratio Days’ sales in Inventory Gross Profit Percentage Return on Sales Ratio
Ratio Industry Ratios GnG Ratios 1. Current Ratio 5.3   2. Acid Test Ratio 5.1   3. Gross Profit Ratio 30%   4. Net Income Margin 7.5%   5. Receivable Turnover Ratio 9   6. Return on Asset Ratio 12%   7. Debt to Asset Ratio 1:4     Interpretation and verbal analysis compared to industry ratios: 1. Liquidity   2. Profitability   3. Solvency   Computations:
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