Fsa Ch.5
Case 5-1: KRACO RETAILERS, INC.
A.
2012
Current ratio = Current assets : Current liabilities = 19,800 : 12,600 = 1.57
Acid-test ratio = (Current assets - Inventory) : Current liabilities = (19,800 - 12,000) : 12,600 = 0.62
Times interest earned = EBIT : Interest expense = 14,920 : 1,800 = 8.29
Net profit margin = (Net income : Sales) x 100% = (8,520 : 61,000) x 100% = 13.97%
Asset turnover = Sales : Total assets = 61,000 : 34,000 = 1.79
Inventory turnover = COGS : Inventory = 35,200 : 12,000 = 2.93
B.
Current ratio is an indicator of a company’s ability to pay its current liabilities. A decrease in current ratio may not a be a good sign.
A ratio that measures the “instant” debt paying ability of a company is the acid-test ratio. The acid-test ratio have increased from 2009 to 2010 but decrease in 2010 to 2012 this could indicate that the company’s instant debt paying ability has decrease from 2010 to 2012.
Times interest earned (TIE) or interest coverage ratio is a measure of a company's ability to honor its debt payments. The TIE ratio of the company is increasing from 2009 to 2010, but then decrease at a relatively significant amount in 2012. This may be not a good sign.
The net profit margin shows how much profit a company makes for every $1 it generates in revenue or sales. The net profit margin of the company have been increasing over time. This indicates that the company have more ability to generate profit over time.
Asset turnover shows the amount of sales generated for every dollar's worth of assets. The asset turnover have been decreasing over time, and the most significant decrease is from 2010 to 2012. This may cause by the reduction of number of sales or increased in total assets. High asset turnover could be a good or a bad indicator, it depends.
Inventory turnover is a ratio showing how many times a company's inventory is sold and replaced over a period. The
A.
2012
Current ratio = Current assets : Current liabilities = 19,800 : 12,600 = 1.57
Acid-test ratio = (Current assets - Inventory) : Current liabilities = (19,800 - 12,000) : 12,600 = 0.62
Times interest earned = EBIT : Interest expense = 14,920 : 1,800 = 8.29
Net profit margin = (Net income : Sales) x 100% = (8,520 : 61,000) x 100% = 13.97%
Asset turnover = Sales : Total assets = 61,000 : 34,000 = 1.79
Inventory turnover = COGS : Inventory = 35,200 : 12,000 = 2.93
B.
Current ratio is an indicator of a company’s ability to pay its current liabilities. A decrease in current ratio may not a be a good sign.
A ratio that measures the “instant” debt paying ability of a company is the acid-test ratio. The acid-test ratio have increased from 2009 to 2010 but decrease in 2010 to 2012 this could indicate that the company’s instant debt paying ability has decrease from 2010 to 2012.
Times interest earned (TIE) or interest coverage ratio is a measure of a company's ability to honor its debt payments. The TIE ratio of the company is increasing from 2009 to 2010, but then decrease at a relatively significant amount in 2012. This may be not a good sign.
The net profit margin shows how much profit a company makes for every $1 it generates in revenue or sales. The net profit margin of the company have been increasing over time. This indicates that the company have more ability to generate profit over time.
Asset turnover shows the amount of sales generated for every dollar's worth of assets. The asset turnover have been decreasing over time, and the most significant decrease is from 2010 to 2012. This may cause by the reduction of number of sales or increased in total assets. High asset turnover could be a good or a bad indicator, it depends.
Inventory turnover is a ratio showing how many times a company's inventory is sold and replaced over a period. The