Question 2 (Ratio Analysis/ 25 marks)

XYZ Company has the following financial statements:

Income Statement

Sales Revenue $100,000

COGS $50,000

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Gross Profit $50,000

Salary Expense $15,000

Utilities Expense $10,000

Depreciation Expense $10,000

Profit* $15,000

* The company does not need to pay tax

Balance Sheet

Assets

Cash $65,000

Equipment $50,000

Accumulated Depreciation ($10,000)

A/C Receivables $80,000

Inventory $80,000

Total Asset $265,000

Liabilities

A/C Payables $50,000

Equity

Capital Stock $200,000

Retained Earning $15,000

a) Calculate the following ratios for XYZ Company:

Current Ratio, Quick Ratio, Debt Ratio, A/C Receivable Collection Period

A/C Payable Payment Period, Inventory Holding Period, Gross Profit Margin,

Profit Margin and Return on asset (ROA) (18 marks)

(Please provide formulae and all ratios should be expressed in one decimal places.)

b) Among all the ratios calculated in part (a), which ratio is most important from the perspectives of creditors and stockholders respectively? Please explain (7 marks)