PROBLEM 46 RATIO ANALYSIS The balance sheet and income state

PROBLEM 4-6 RATIO ANALYSIS The balance sheet and income statement for the J. P. Robard Mfg. Company are given below. Calculate the following ratios: current ratio, debt ratio, times interest earned, average collection period, inventory turnover, fixed asset turnover, total assets turnover, gross profit margin, operating profit margin, operating return on assets, return on equity DATA Balance Sheet: (000) Cash Accounts receivable Inventories S500 2,000 1,000 S3,500 4,500 $8,000 Current assets Net fixed assets Total assets Accounts payable Accrued expenses Short-term notes payable S1,100 600 300 S2.000 2,000 4,000 $8,000 Current liabilities Long-term debt Owners\' equity Total liabilities and owners\' equity Income Statement: (000) Sales (all credit) Cost of goods sold Gross profit Operating profit Earnings before taxes $8,000 3,300 S4,700 3,000 S1,700 367 S1,333 533 S800 Operating expenses (includes S500 depreciation) Interest expense Income taxes (40%) Net income

Solution

J.P.Robard Mfg. Current Ratio= Current Assets/Current Liabilities Current Assets $                                                                 3,500.00 Current Liabilities $                                                                 2,000.00 Current Ratio ($3500/$2000)=1.75:1 Debt Ratio= Total liabilities/Total Assets Total Liabilities $                                                                 4,000.00 Total Assets $                                                                 8,000.00 Debt Ratio= ($4000/$8000)=50% Times Interest Earned= Earnings before interest and tax/Interest Earnings befor interest and tax $                                                                 1,700.00 Interest $                                                                     367.00 Times Interest Earned= $                                                                          4.63 Average collection period 365/Receivable Turnover Accounts Receivable $                                                                 2,000.00 Receivable Turnover= Credit Sales/Average Debtors Credit Sales $                                                                 8,000.00 Debtors $                                                                 2,000.00 Receivable Turnover= 8000/2000=4 Average collection period 365/4=91.25 Inventory Turnover= Cost of goods/Average Inventory Cost of goods sold $                                                                 3,300.00 Inventory $                                                                 1,000.00 Inventory Turnover= ($3300/$1000)=3.3 Times Fixed Assets Turnover= Fixed Assets/Sales Fixed Assets = $                                                                 4,500.00 Sales $                                                                 8,000.00 Fixed Assets Turnover ($4500/$8000)=.5625 Times Total Assets Turnover= Fixed Assets/Sales Total Assets = $                                                                 8,000.00 Sales $                                                                 8,000.00 Total Assets Turnover ($8000/$8000)=1 Times Gross Profit Margin= Gross Profit/Sales Gross Profit $                                                                 4,700.00 Sales $                                                                 8,000.00 Gross Profit Margin=($4700/$8000) $                                                                          0.59 Operating Profit Margin= Operating Profit/Sales Operating Profit= $                                                                 1,700.00 Sales $                                                                 8,000.00 Operating Profit Margin ($1700/$8000)=21.25% Return on Equity= Net Profit after tax/Equity Net Profit after tax= $                                                                     800.00 Equity $                                                                 4,000.00 Return on Equity=($800/$4000) $                                                                          0.20