Calculate and analyze financial ratios. (LO 3)

The financial statements of Builder Bob's include the following items.

\section*{Required}

a. Compute the following ratios for the year ended September 30, 2008, and September 30, 2007. For each, indicate if the direction is favorable or unfavorable for the company.
1. Current ratio 2. Quick ratio 3. Accounts receivable turnover ( 2008 only)
4. Inventory turnover ratio ( 2008 only)
5. Gross margin percentage ( 2008 only)

b. Which financial statement users would be most interested in these ratios?

c. Suppose the industry average for similar retail stores for the current ratio is 1.2. Does this information help you evaluate Builder Bob's liquidity?

Transcribed Image Text:

At Balance sheet: Cash Investments (short-term) Accounts receivable (net) Inventory Prepaid rent Total current assets Sept. 30, 2008 Sept. 30, 2007 $ 27,000 $ 22,000 15,000 12,000 44,000 40,000 85,000 75,000 6,000 2,000 $177,000 $151,000 $120,000 Total current liabilities Income statement for the year ended September 30, 2008: S 80,000 Net credit sales Cost of goods sold $320,000 150,000