QUESTION 3 (20%)

The following information is an extract from Carson Electronics financial statements for the 2018 2019 financial year:

Inventory $1,500,000

Net receivables$4,550,000

Net credit sales$8,000,000

Current assets$8,830,000

Non-current assets$1,650,000

Account payable$2,450,000

Bank Bill (Short term)$430,500

Long Term debt$255,500

Ordinary equity$7,840,000

Net operating income$505,300

Cost of goods sold$255,000

Interest expense$ 75,000

Tax rate30%

Ratios

Industry Benchmark (Average)

Current ratio

2:1

Receivable turnover

5 times

Average age of receivables

90 days

Inventory Turnover

2.2 times

Debt to-equity ratio

.33

Net working capital

Positive

Return on assets

10%

Return on equity

9.05%

Required:

Calculate the following ratios and compare your results with industry benchmark stated above:

a) Current ratio: Current assets/Current liabilities

b) Receivable turnover: Total Credit Sales / Average Accounts Receivable

c) Average age of receivables: (Accounts Receivable * 365) / Sales Revenue

d) Inventory Turnover: Sales / Inventory

e) Debt to-equity ratio: Total Debts / Total Equity

f) Net working capital: Current Assets Current Liability

g) Return on assets: Net Income / Average Total Assets

h) Return on equity: Net Income / Average Shareholders Equity

[Answer and show workings in the below template]

Use the following template to answer your calculation, compare the result with Industry average and Interpretation of your result.

Ratio formula

(with calculation)

Compare with

Industry Average

Interpretation