paper
FIN401
04/01/2015
Ratio
Your Answer
Industry Average
Your Interpretation
(Good-Fair-Low-Poor)
Profit margin on sales
3%
3%
GOOD
Return on assets
6%
9%
LOW
Receivable turnover
12X
16X
FAIR
Inventory turnover
4X
10X
LOW
Fixed asset turnover
5X
2X
GOOD
Total asset turnover
1.7X
3X
LOW
Current ratio
2.7
2X
GOOD
Quick ratio
1.3X
1.5X
GOOD
Times interest earned
11X
7X
GOOD
Financial Ratios are useful in that they display a company’s health; comparing other companies in the market does this. The three main types of ratios are Liquidity, Profitability ratios and Leverage ratios. Liquidity ratio tells the company’s financial status when in relation to paying on its debts. This scenario of Gary and Company displays it’s current ratio (Assets/Liabilities) as 2.7, which is a little above the average Industry Average set at 2X, moreover, this indicates that the company is able to make payments to its loan institutions such as creditors and banks, also the company is able to trade its assets and gain cash to pay on its loans given a 12 year period. The company meets the industry average profit margin (Profitability ration) at 3%, this means that its keeping up with competition. Finally, Leverage ratio, this basically tells how much debt a company can operate with. The companies Inventory Turnover, is how many times the company can sell its on hand inventory, with that being said I gave the company a fair mark, this is only do to its ability to keep up its profitability, I assume the company sells its products at a higher cost than the others. The fixed asset turnover ratio was above the industry average this indicates that the company isn’t investing too much currency on equipment; however, the asset turnover ratio is lower than the average industry. Finally, the interest earned is used to measure weather or not the money the company generates will be able to cover its interest payments. In this case the company stands above the market average, this interns
04/01/2015
Ratio
Your Answer
Industry Average
Your Interpretation
(Good-Fair-Low-Poor)
Profit margin on sales
3%
3%
GOOD
Return on assets
6%
9%
LOW
Receivable turnover
12X
16X
FAIR
Inventory turnover
4X
10X
LOW
Fixed asset turnover
5X
2X
GOOD
Total asset turnover
1.7X
3X
LOW
Current ratio
2.7
2X
GOOD
Quick ratio
1.3X
1.5X
GOOD
Times interest earned
11X
7X
GOOD
Financial Ratios are useful in that they display a company’s health; comparing other companies in the market does this. The three main types of ratios are Liquidity, Profitability ratios and Leverage ratios. Liquidity ratio tells the company’s financial status when in relation to paying on its debts. This scenario of Gary and Company displays it’s current ratio (Assets/Liabilities) as 2.7, which is a little above the average Industry Average set at 2X, moreover, this indicates that the company is able to make payments to its loan institutions such as creditors and banks, also the company is able to trade its assets and gain cash to pay on its loans given a 12 year period. The company meets the industry average profit margin (Profitability ration) at 3%, this means that its keeping up with competition. Finally, Leverage ratio, this basically tells how much debt a company can operate with. The companies Inventory Turnover, is how many times the company can sell its on hand inventory, with that being said I gave the company a fair mark, this is only do to its ability to keep up its profitability, I assume the company sells its products at a higher cost than the others. The fixed asset turnover ratio was above the industry average this indicates that the company isn’t investing too much currency on equipment; however, the asset turnover ratio is lower than the average industry. Finally, the interest earned is used to measure weather or not the money the company generates will be able to cover its interest payments. In this case the company stands above the market average, this interns