This preview shows pages 1–3. Sign up to view the full content.
CEE 498
Fall, 2004
HW 3
1.
For the financial statement from the lecture handout, calculate the eleven key
financial ratios (also found in lecture handout) for the 1988 financial data.
Is
this company in a sound financial position?
Discuss the ratios that fall outside
the given range (if any do).
What do these eleven ratios indicate the company
has to improve?
Quick Ratio = Total Current Assets/Current Liabilities
= 994,290 / 632,124 =
1.57
Current Ratio = Total Current Assets / Total Current Liabilities
= 994,290 / 632,124 =
1.57
Collection Period = (Accounts Receivable x 365) / Annual Sales Revenue
= 365(Contract + Account Receivable) / Annual Sales Revenue
= ((321,258 + 2439)365) / 1,825,499
=
64.7 days
Net Profit / Tangible Net Worth = Net Profit / (Total Assets – Total Liabilities)
= 144,067 / (1,022,478 – 632,124)
= .3690 x 100
=
36.9%
Net Profit / Total Assets = 144,067 / 1,022,478
= .1408 x 100
=
14.1 %
Net Sales / Tangible Net Worth = 1,825,449 / (1,022,478632,124)
=
4.67
Net Sales / Working Capital = Net Sales / (Current Assets – Current Liabilities)
= 1,825,449 / (994,290 – 632,124)
=
5.04
General, Administrative Expenses / Tangible Net Worth = 363,421 / (1,022,478632,124)
= .931 x 100
=
93.1%
Fixed Assets / Tangible Net Worth = (Total Property, Plant, & Equipment Assets –
Accumulated Depreciation) / Tangible Net Worth = 28,188 / 390,354
= .0722 x 100
=
7.2 %
This preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentTotal Liabilities / Tangible Net Worth = 632,124 / 390,354
=
1.62
Hard Debt / Tangible Net Worth = 100,00 / 390,354
=
0.2562
This company is in a poor financial position.
This is revealed through 5 of these 11
ratios.
The first ratio, which shows its poor position, is the collection period.
The
collection period for this company is 64.7, which is above the average collection period.
Therefore, the collection period must be reduced to help improve the cash flow for this
company.
The second ratio, which demonstrates poor financial position, is the net sales
to tangible net worth ratio.
The result of this ratio is 36.9%, which is below the average.
The below average result of this ratio reveals that the company is overcapitalizing and
has slow growth.
Therefore, the company must increase sales and stop investing capital
in the company.
The third ratio that is notable is the general & administrative Expenses
to tangible net worth ratio.
The value of this ratio is 93.1%, which is considered high.
This is the end of the preview. Sign up
to
access the rest of the document.
 Spring '10
 russeljeffries

Click to edit the document details