ABC Company Limited - Nov 4

ABC Company Limited - Nov 4 - -industry...

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ABC Company Limited Income statement Jan-Mar 1987 Gross sales----310000 Less returns---10000 Net sales---300000 Less=cost of goods sold Beginning inventory---40000 Purchases---80000 Total goods on hand---120000 Ending inventory 65000 Operating expenses: Office salaries ---22000 Rent 40000 Insurance 1500 Selling: Advertising 15000 Commissions 42000 Delivery expenses 2000 Total operating expenses 122500 net income before tax 122500 Income tax (50%) 61250 Net Income 61250 Income statement Problem
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Gross sales 60000 Selling expenses 8000 Inventory Jan 1 1992 10000 Sales return1500 Income tax rate 50% Purchases 35000 Inventory Dec 31 1992 9000 Gen and Admin Expenses 6000 Net sales 58500 Goods on hand 10000+35000 = 45000 T.C.G.S=38000 Gross profit 22500 Ratio Analysis -a logical relationship exists between certain pairs of items -can the company pay its bills? -is too much money tied up in inventory? -Is the firm’s credit policy adequate? What do we do with the ratios?
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Unformatted text preview: -industry standards-historical standards-company ratio Commonly used ratios-liquidity ratios – ability to pay current debts-operating ratios (also known as activity ratios) – deal with the stability of the firm-indebtedness ratios (also known as leverage ratios)-Profitability ratios – measures the profit level of the business Liquidity Ratios-current ratio – C.A(current assets/ CL(current liability)-Quick ratio (also called acid test ratio) C.A –(inv + p.Exp)/CL-Working capital C.A – C.L Operating ratios -average collection period (also known as A/R turnover) A.R / ave. Daily sales-inventory turnover C.O.G.S / Ave inventory Indebtedness ratios (leveraging)-debt to total assests-total debt/total assests Example 2008 300000 Down payment equity 30000 - 54000 270000 270000/300000 =90% Profability ratio Return on investment (R.O.I) Net profit/owner’s equity...
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This note was uploaded on 12/10/2010 for the course ADM ADM 1300 taught by Professor Peterkoppel during the Fall '10 term at University of Ottawa.

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ABC Company Limited - Nov 4 - -industry...

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