PRACTICE CASE Analysis and interpretation of financial state

PRACTICE CASE Analysis and interpretation of financial statements (LG 5) Assume that selected information from the 2011 annual reports of two major retailers, Ben Mart and Sue Mart are shown below. All numbers are in mállions. Income Statement Net sales Cost of goods sold Gross margin Operating expenses Interest expense Income before taxes BEN Mart $ 37,028.0 SUE Mart $193,295.0 $ 7,461.0 31,679.0 4.0 $ (378.0) 9,987.0 Income taxes (refund) Net income (loss) Balance Sheet Current asscts: Cash and cash equivalents S 201.0 2,054.0 1,768.0 21,442.0 1.2910 S 7,624.0 26.555.0 Trade accounts receivable (net) Inventories 1,200.0 5,412.0 Other current assets Total current assets Noncurrent assets Total assets 78.130 Current habilities T99 949 Long-term labilities Total iabilities Total owners\' equity 3,861.0 $ 7,660.0 46,787.0 Total liabilities and owners\' equity REQUIRED I. Compute the following ratios roing computations to the nearest tenth of a percent. a. Current ratio for the end b. Quick ratio for the end of fisca! 2ui e. Accounts receivable turnover ratio for 2011. (Accounts receivable at the end of fiseal 2010 Ben Mart S1.300.0, Sue Mart $1,341.0) d. Inventory turnover ratio for 2011. (Inventory at the end of fiscal 2010: Ben Mart 7,101.0, Sue Mart $19,793.0) e. Debt ratio for the end of fiscal 2011 f. Times interest earned for 2011. & Gross profit margin for fiscal 2011. h. Profit margin for fiscal 2011. i. Total asset turnover for fiscal 2011. (Total assets at the end of fiscal 2010: Ben Mart $15,140.0, Sue Mart $70,349.0) j. Return on total assets for fiscal 2011. 2. Based on the ratios you computed in requirement 1, which of the two companies would you recommend as an investment? Briefly explain.

Solution

Working:

2.

From the above analysis, except for the liquidity ratios SUEMart has better ratio, whether turnover ratios or the profitability ratios.

Hence, I would recommend SUEMart for investment.

a	Current Ratio	2.01	0.92
b	Quick Ratio	0.29	0.19
c	Accounts Receivable Turnover	29.62	124.35
d	Inventory Turnover	4.74	7.29
e	Debt Ratio	0.52	0.60
f	Times Interest Earned	-173.80	18971.83
g	Gross Profit Margin	20%	22%
h	Profit Margin	-1%	3%
i	Total Assets Turnover	2.49	4.05
j	Return on total Assets	-2%	8%