The following ratios were defined, computed, and reviewed in prior weeks. The computations are the basis for extracting meaning from the financial statements provided.

Each category heading should appear as a section heading in your final report. An adequate description of a ratios meaning can be accomplished in two to four sentences. For example, Total Asset Turnover is a general efficiency ratio that measures management's efficient or inefficient use of short-term and long-term assets. The ratio is calculated as follows:

Total Asset Turnover = Sales/Total Assets. Assume sales of $8,000,000 and total assets of

$4,000,000. Total Asset Turnover in this example - $8,000,000/$4.000.000 = 2.

We might describe the calculation as follows:

Total Asset Turnover is a general measure of management's use of total assets to generate sales.

The larger the number, the better the use of assets. In this case, sales revenue of $2.00 per asset dollar indicates management is using assets reasonable well. A negative ratio would be a concern.

Also note that you are approaching this assignment as an entrepreneur with access to limited information. You have no historical data: the financial statements you are using are your pro forma statements. You also lack access to competitor financials. As such, time-series and cross-sectional benchmarking cannot be accomplished. As such, use your judgment and generally accepted standards about financial ratios to develop meaning as was done in the Total Asset Turnover example above.

• Create an introduction and a strong thesis statement. Identify the limitations that prevent a time-series or cross-sectional analysis of the derived ratios.
• Create a ratio analysis that derives meaning from financial statements by grouping derived ratios under designated four section headings (Liquidity Ratios, etc).
• Create a summary that includes three findings the team feels are significant.

Management Efficiency Ratios

• Accounts Receivable Turnover
• Days Sales Outstanding
• Days of Inventory
• Accounts Payable Turnover

Profitability Ratios

• Gross Margin
• Operating Margin
• Return on Assets
• Return on Equity