Times interest earned 420x gross profit margin gross

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Times Interest Earned 4.20X Gross Profit Margin Gross Profit/Net Sales 25.00% Operating Profit Margin 12.50% Net Profit Margin Net Earnings/Net Sales 6.10% Return on Total Assets 8.54% Return on Equity 20.93% Operating Profit/Interest Expense Operating Profit/Net Sales Net Earnings/Total Assets Net Earnings/Stockholders' Equity
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Balance Sheet at 12/31/16 Cash $125,000 Accounts Receivable $275,000 Inventory $325,000 Current Assets $725,000 Fixed Assets, net $420,000 Total Assets $1,145,000 Accounts Payable $150,000 Notes Payable $225,000 Accrued Liabilities $100,000 Current Liabilities $475,000 Long-Term Debt $400,000 Total Liabilities $875,000 Equity $270,000 $1,145,000 2015 2016 Unit 2016 Industry Average 1.65X 1.53 x 1.70X 0.89X 0.84 x 0.95X provided, complete the financial ratio calculations for 2016. Advise managem Total Liabilities and Equity
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60 days 66.92 days 65 days 3.90X 3.69 x 4.50x 3.33X 3.57 x 3.00x 1.35X 1.31 x 1.37x 61.00% 76.42 % 60.00%
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3.70X 2.78 x 4.75X 23.00% 20.00 % 22.50% 12.70% 13.33 % 12.50% 6.00% 5.12 % 6.50% 8.10% 6.71 % 8.91% 20.74% 28.44 % 22.28%
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Explanation ment of any ratios that indicate potential problems and provide and The current ratio decreasing means the company has less current assets (cash or assets that will soon be cash) to cover their current liabilities (what is coming due soon). This indicates their current assets are decreasing or their current liabilities are increasing. Not only has this ratio been trending downward for the company, it is also below the industry average. This indicates liquidity issues for the company. The quick ratio tells us similar information as the current ratio. The difference is that the quick ratio does not include Inventory in current assets which is in the numerator. So with companies that have Inventory, the quick ratio will always be lower than the current ratio. However, we see the quick ratio is also trending downward for the company and lower than the industry average. Again, this indicates a decline in liquidity for the company.
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The average collection period increased, but this is not an improvement. For this ratio to increase, A/R is either increasing or Average Daily Sales are decreasing. This indicates it's taking the company more time to collect cash from A/R, which is an issue. It could be the company is having potential weaknesses in their credit policies or collection policies. For example, they may have loosened their credit policies. Therefore, they are selling to lower quality customers causing A/R to increase with a higher likelihood of not being able to collect the cash from these A/R customers. Also, their 2016 ratio has now surpassed the industry average, further indicating a liquidity issue.
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  • Fall '15
  • Generally Accepted Accounting Principles, $1,145,000 2015 2016, $1,145,000 2016, 13.33 %, 20.00 %

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