ACC 230 Week 8 Assignment Analyzing & Interpreting Financial Ratios

ACC 230 Week 8 - Luna Lighting a retail firm has experienced modest sales growth over the past three years but has had difficulty translating the

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Unformatted text preview: Luna Lighting, a retail firm, has experienced modest sales growth over the past three years but has had difficulty translating the expansion of sales into improved profitability. Using three years’ financial statements, you have developed the following ratio calculations and industry comparisons. Based on this information, suggest possible reasons for Luna’s profitability problems. Industry 2009 2008 2007 2009 Current 2.3X 2.3X 2.2X 2.1X Average collection period 45 days 46 days 47 days 50 days Inventory turnover 8.3X 8.2X 8.1X 8.3X Fixed asset turnover 2.7X 3.0X 3.3X 3.5X Total asset turnover 1.1X 1.2X 1.3X 1.5X Debt ratio 50% 50% 50% 54% Times interest earned 8.1X 8.2X 8.1X 7.2X Fixed charge coverage 4.0X 4.5X 5.5X 5.1X Gross profit margin 43% 43% 43% 40% Operating profit margin 6.3% 7.2% 8.0% 7.5% Net profit margin 3.5% 4.0% 4.3% 4.2% Return on assets 3.7% 5.0% 5.7% 6.4% Return on equity 7.4% 9.9% 11.4% 11.8% Solution Based on this information, some possible reasons for Luna’s profitability problems are suggested...
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This note was uploaded on 01/24/2012 for the course ACC 220 ACC 220 taught by Professor Black during the Spring '11 term at University of Phoenix.

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