Question # 4 The Ferri Furniture Company, a manufacturer and wholesaler of high-quality home furnishings, has been experiencing low profitability in recent years. As a result, the board of directors has replaced the president of the firm with a new president, Helen Adams, who has asked you to make an analysis of the firms financial position using the financial ratios. The most recent industry average ratios, and Ferris financial statements, are as follows:

BALANCE SHEET INCOME STATEMENT

Cash $ 400 Net Sales (all credit $ 12680

Accounts receivable 1300 Cost of goods sold 8930

Gross Profit $ 3,750

Inventories 2,100 Selling, general and

Current assets $ 3800 Administration expense 2,230

Net fixed assets 3320 Interest expense 460

Total Assets $ 7120 Profit before taxes $ 1060

Accounts payable $ 320 Taxes 390

Accruals 260 Net Profit $ 670

Short term loans 1100

Current Liabilities $ 1680

Long-term debt 2000

Shareholders equity 3440

Total Liabilities and

Shareholders Equity $ 7120

Requirements

On the basis of this information, compute and interpret the results with industry average of (i) Current Ratio, (ii) Quick Ratio (iii) Debt to total assets ratio ( iv) Average Collection Period (v) Payable Turnover in Days (vi) Gross Profit Margin

INDUSTRY AVERAGE RATIOS

Current ratio 2x Quick ratio 1.5x

Average Collection Period 45 days Debt to total assets Ratio 30%

Payable Turnover in Days 35 days Gross Profit Margin 45%

-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Calculation is based on a 365-day year.