Company A sells on terms of 2/10, net 30. Its financial statements over the last three years are as follows. Please use the ratios discussed in Chapter 03, analyze the companys financial condition and performance over the last three years. Are there any problems?

1. Company A sells on terms of 2/10, net 30. Its financial statements over the last three years are as follows. Please use the ratios discussed in Chapter 03, analyze the companys financial condition and performance over the last three years. Are there any problems?

Liquidity ratios ability to pay bills in the short run

Current ratio = current assets / current liabilities Quick ratio = (current assets inventory) / current liabilities Cash ratio = cash / current labilities

Net working capital to total assets = NWC / total assets Interval measure = current assets / average daily operating costs

Financial leverage ratios ability to meet long-term obligations

Total debt ratio = (total assets total equity) / total assets Debt-equity ratio = (total assets total equity) / total equity Equity multiplier = total assets / total equity = 1+debt/equity ratio Long-term debt ratio = long-term debt / (long-term debt + total equity)

Times interest earned = EBIT / interest Cash coverage = (EBIT + depreciation ) / interest

Asset management ratios efficiency of asset use

Inventory Turnover = COGS / inventory (Days Sales in Inventory) Receivables Turnover = sales / AR (Days Sales in Receivables) NWC turnover = sales / (current assets current liabilities) Fixed asset turnover = sales / net fixed assets Total asset turnover = sales / total assets

Comparing a flow item with a stock item...

Profitability ratio efficiency of operations and how that translate to the bottom line

Profit margin = net income / sales

Return on asset = net income / total assets Return on equity = net income / total equity

Market value ratios how are its shares valued in the stock market

Price-earnings ratio = price per share / earning per share

Price-sales ratio = price per share / sales per share

Market-to-book ratio = market value per share / book value per share

Company A sells on terms of 2/10, net 30. Its financial statements over the last three years are as follows. Please use the ratios discussed in Chapter 03, analyze the companys financial condition and performance over the last three years. Are there any problems?

Ratios used in chapter 3 :

Liquidity ratios ability to pay bills in the short run

Current ratio = current assets / current liabilities Quick ratio = (current assets inventory) / current liabilities Cash ratio = cash / current labilities

• Net working capital to total assets = NWC / total assets Interval measure = current assets / average daily operating costs

Financial leverage ratios ability to meet long-term obligations

Total debt ratio = (total assets total equity) / total assets Debt-equity ratio = (total assets total equity) / total equity Equity multiplier = total assets / total equity = 1+debt/equity ratio Long-term debt ratio = long-term debt / (long-term debt + total equity)

• Times interest earned = EBIT / interest Cash coverage = (EBIT + depreciation ) / interest

Asset management ratios efficiency of asset use

Inventory Turnover = COGS / inventory (Days Sales in Inventory) Receivables Turnover = sales / AR (Days Sales in Receivables) NWC turnover = sales / (current assets current liabilities) Fixed asset turnover = sales / net fixed assets Total asset turnover = sales / total assets

• Comparing a flow item with a stock item

Profitability ratio efficiency of operations and how that translate to the bottom line

Profit margin = net income / sales

• Return on asset = net income / total assets Return on equity = net income / total equity

Market value ratios how are its shares valued in the stock market

Price-earnings ratio = price per share / earning per share

Price-sales ratio = price per share / sales per share

Market-to-book ratio = market value per share / book value per share

2. Company A sells on terms of 2/10, net 30. Its financial statements over the last three years are as follows. Please use the ratios discussed in Chapter 03, analyze the company's financial condition and performance over the last three years. Are there any problems? Cash Accounts receivable Inventory Net fixed assets Accounts payable Accruals Bank loan, short term Long-term debt Common stock Retained earnings 20x1 $ 30,000 200,000 400,000 800,000 $1,430,000 $ 230,000 200,000 100,000 300,000 100,000 500,000 $1,430,000 $4,000,000 3,200,000 300,000 20X2 $ 20,000 260,000 480,000 800,000 $1,560,000 $ 300,000 210,000 100,000 300,000 100,000 550,000 $1,560,000 $4,300,000 3,600,000 200,000 20X3 $ 5,000 290,000 600,000 800,000 $1,695,000 $ 380,000 225,000 140,000 300,000 100,000 550,000 $1,695,000 $3,800,000 3,300,000 100,000 Sales Cost of goods sold Net profit 2. Company A sells on terms of 2/10, net 30. Its financial statements over the last three years are as follows. Please use the ratios discussed in Chapter 03, analyze the company's financial condition and performance over the last three years. Are there any problems? Cash Accounts receivable Inventory Net fixed assets Accounts payable Accruals Bank loan, short term Long-term debt Common stock Retained earnings 20x1 $ 30,000 200,000 400,000 800,000 $1,430,000 $ 230,000 200,000 100,000 300,000 100,000 500,000 $1,430,000 $4,000,000 3,200,000 300,000 20X2 $ 20,000 260,000 480,000 800,000 $1,560,000 $ 300,000 210,000 100,000 300,000 100,000 550,000 $1,560,000 $4,300,000 3,600,000 200,000 20X3 $ 5,000 290,000 600,000 800,000 $1,695,000 $ 380,000 225,000 140,000 300,000 100,000 550,000 $1,695,000 $3,800,000 3,300,000 100,000 Sales Cost of goods sold Net profit 2. Company A sells on terms of 2/10, net 30. Its financial statements over the last three years are as follows. Please use the ratios discussed in Chapter 03, analyze the company's financial condition and performance over the last three years. Are there any problems? Cash Accounts receivable Inventory Net fixed assets Accounts payable Accruals Bank loan, short term Long-term debt Common stock Retained earnings 20x1 $ 30,000 200,000 400,000 800,000 $1,430,000 $ 230,000 200,000 100,000 300,000 100,000 500,000 $1,430,000 $4,000,000 3,200,000 300,000 20X2 $ 20,000 260,000 480,000 800,000 $1,560,000 $ 300,000 210,000 100,000 300,000 100,000 550,000 $1,560,000 $4,300,000 3,600,000 200,000 20X3 $ 5,000 290,000 600,000 800,000 $1,695,000 $ 380,000 225,000 140,000 300,000 100,000 550,000 $1,695,000 $3,800,000 3,300,000 100,000 Sales Cost of goods sold Net profit