Week 5 Assignment
Financial Ratios
Lauren Palmer

1. Liquidity Ratios
Current Ratios
Edison-12, 800/3,600=3.56:1 and 9,200 working capital
Stagg-13,300/3,600=3.69:1 and 9,700 working capital
Thornton-13,800/3,600=3.83: and 10,200 working capital

Quick Ratios Edison-11,000/3,600=3.06:1 Stagg-10,000/3,600=2.78:1 Thornton-9,000/3,600=2.5:1
After looking at both ratios and calculating working capital, Edison is the most liquid. They have the highest quick ratio, which means they have the highest access to immediate cash, not a lot of money tied up in inventory, which can’t be converted to cash right away or quickly. Then Stagg is followed by Edison and Thornton.

2. Computation and evaluation of activity ratios
Account Receivable Turnover Ratio=Net sales/Avg. Account Recev.
832,000/(205,000+156,000)/2=
832,000/180,500=4.61:1

Inventory Turnover Ratio=COGS/Avg. Inventory
530,000/(70,000+50,000)/2
530,000/120,000/2
530,000/60,000=8.83:1

3. Profitability ratios, trading on the equity
Profit Margin on Sales Ratio=Net Income/Net Sales
130,000/1,750,000=7.43:1
Return on Equity=Net Income/Avg. Common Equity
130,000/500,000=26:1
Return On Assets=(Net Income+Interest Expense)/Avg. Assets
(30,000+120,000)/1,200,000
250,000/1,200,000=20.83:1

B. ROE is above ROA ratio, which means debt, is being managed in a way that is accretive to stockholders. It also shows firm has a positive financial structure with a 7.43% of net profit margin. They could increase profitability more but they are still positive as of now The debt equity ratios is 40:1 which is high and suggests they have borrowed money to pay off liabilities and shouldn’t by anymore on credit affecting equity.
4. Horizontal Analysis
Dollar Change
_________________
Amount Of item in base year X100

Current Assets Increase in 6,000 and 7.5% increase Plant, Property and Equip Increase in 9,000 and