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:

1. Compute the relevant ratios from the financial statements provided above.
2. Based on your answer in (a) above , analyse the firms financial performance as compared to the industry average ratios given.
3. Give any TWO (2) advantages and limitations of ratio analysis?

Current ratio Acid test ratio Debt ratio Time interest earned INDUSTRY AVERAGE RATIOS 2 times Inventory tumover 1.1 times Average collection period 54.99 Net profit margin 2.4 times Return on equity 3.6 times 63 days 4.1496 STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2015 (8'000) Cash 1,400 Accounts payable 3,000 Marketable securities 300 Notes payable 3,400 Accounts receivables 10,000 Accrued wages and salaries 3.100 Inventories 12.000 Current portion of long term debt 500 Prepaid expenses 300 Total current Habilities 10.000 Total current assets 24,000 Deferred income taxes 1,500 Plant and equipment 14.300 Mortgage 6.300 Accumulated depreciation 7.300 Term loans 2.900 Total fixed assets 7.000 Total long term liabilities 10 700 Total assets 31.000 Share capital 2.100 Retained earnings 8.200 Total equity 10,300 Total liabilities and equity 31,000 STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 2015 (S'000) Net sales 51.000 Cost of good sold 38.000 Gross profit 13.000 Operating expenses 9.000 Net operating income 4,000 Interest expense 1.000 Earning before taxes 3.000 Income taxes 1.200 Earnings after takes 1. ROO