*Based upon the Saxton Company ratio analysis performed, assume that each ratio computed represented a 10% increase vs. the prior year results (for each ratio in each of the four key categories). Then for each ratio, just state whether the latter year results are good, bad, or indifferent (i.e. given the information available//derived).

Finally, for any ratio that has a negative (i.e. bad vs. prior year) assessment, please give a brief suggestion of what the firm might do to correct the negative trend.

Profitability Ratios

Profit Margin (%) = Net Income / Sales

= $ 200,000 / $ 4,000,000

= 5%

Return on Assets (ROA) (%) = Net Income / Total Assets

= $ 200,000 / $ 1,600,000

= 12.5%

Return on Equity (ROE) (%) = Net Income / Total Owners Equity

= $ 200,000 / $ 1,000,000

= 20%

Asset Utilization Ratios

Receivable Turnover (x) = Sales / (A/R)

$ 4,000,000 / $350,000

= 11.43 Times

Inventory Turnover (x) = Sales / Inventory

= $ 4,000,000 / $370,000

= 10.81 Times

Total Asset Turnover (x) = Sales / Total Assets

= $ 4,000,000 / $1600,000

= 2.5 Times

Fixed Asset Turnover (x) = Sales / Total Fixed Assets

= $ 4,000,000 / $800,000

= 5 Times

Average Collection Period (Days) = (A/R) / Average Daily Credit Sales

= $350,000 / $11,111

= 31.5 Days

Average Daily Credit Sales = ((Sales per Year) / 360 Days Per Year) * % of Sales done on a credit basis

$ (4,000,000 / 360) * 100%

$11,111

Liquidity Ratios

Current Ratio (x) = Total Current Assets / Total Current Liabilities

= $ 800,000 / $ 300,000

= 2.66 Times

Quick Ratio (x) = (Total Current Assets Inventory) / Total Current Liabilities

= $ (800,000 - 370,000) / $ 300,000

= $ 430,000 / $ 300,000

= 1.43 Times

Net Working Capital ($) = Total Current Assets Total Current Liabilities

= $ 800,000 - $ 300,000

= $ 500,000

Debt Utilization Ratios

Debt To Assets (%) = Total Debt / Total Assets

= $ 600,000 / $ 1,600,000

=37.5%

Debt To Equity (%) = Total Debt / Total Owners Equity

= $ 600,000 / $ 1,000,000

= 60%

Times Interest Earned (x) = EBIT / Interest Expense

= Earnings before tax + Interest / Interest Expense

= $300,000 + $50,000 / $50,000

= $350,000 / $50,000

= 7 Times

SAXTON COMPANY

Income Statement

For the Year Ended December 31, 2009

Sales (all on credit) $ 4,000,000

Cost of Goods Sold3,000,000

___________

Gross Profit.$ 1,000,000

Selling and Administrative Expenses. 450,000

_____________

Operating Profit $ 550,000

Interest Expense 50,000

Extraordinary Loss. 200,000

Earnings Before Taxes$ 300,000

Income Taxes (33%). 100,000

Net Income.$ 200,000

SAXTON COMPANY

Balance Sheet

As of December 31, 2009

Assets

Cash $ 30,000

Accounts Receivable.. 350,000

Marketable Securities .. 50,000

Inventory. 370,000

____________

Total Current Assets. $ 800,000

Net Plant and Equipment.. 800,000

____________

Total Assets.$ 1,600,000

Liabilities and Stockholders Equity

Accounts Payable..$ 50,000

Notes Payable.. 250,000

_____________

Total Current Liabilities..$ 300,000

Long Term Liabilities 300,000

____________

Total Liabilities ..$ 600,000

Common Stock. 400,000

Retained Earnings.. 600,000

____________

Total Stockholders Equity.$ 1,000,000

____________