SEMESTER SPRING 2010
Financial Statement Analysis (Fin 621)
Assignment # 2
(a)
Inventory Turn Over Rate = Net Sales / Average Inventory
= 40, 50, 000 / 5, 26, 500 = 7.69 or 8
Accounts Receivable Turn Over Rate = Net Sales / Average Accounts Receivable
= 40, 50, 000 / 4, 50,000 = 9 times
Comments: Yes. I will sign the contract because company sold her stock 8 times in accounting year and has turn over of Accounts receivable 9.
Part b
Return on Equity = Net Income / Stock Holder’s Equity
= 2, 38,500 / 11, 92, 500 * 100 = 20%
= 5.8 % or 6 %
Interest Coverage Ratio = Operating Income before Interest & Tax / Interest Expense
= 4, 32, 000 / 67, 500
= 6.4 Times
Comments: It is evident from the above calculations that the company earns 20 % on equity investment and has more than 6 times the operating income to pay the interest income.
Part c
| Sales | 4,050,000 |
| Less Cost of Goods Sold | 2,632,500 |
| Gross Profit | 1,417,500 |
| Less Operating Expenses | 985,500 |
| Net Operating Income before Interest & Income Tax | 432,000 |
| Less Interest Expenses | 67,500 |
| Operating Income Before Income Tax | 364,500 |
| Less Income Tax | 126,000 |
| Net Income | 238,500 |
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