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Question

Given the income statement and balance sheet for ABC Equipment Corporation, compute the ratios that

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are also shown for the industry average. For each ratio, indicate whether ABC Equipment Corporation is


better (B) or worse (W) than the industry average. (SHOW YOUR WORK)


Income Statement


Sales (all credit) $4,500,000

Less: Cost of goods sold 3,000,000


Gross profit $1,500,000

Less: Selling and administrative expenses* 1,050,000


Operating profit (EBIT) $450,000

Less: Interest expense 56,250


Earnings before taxes (EBT) $393,750

Less taxes (25%) 98,438


Earnings after taxes (EAT) $295,312


Balance Sheet


Cash $255,050


Accounts receivable (net) 493,150


Inventory 250,000


Total current assets $998,200


Net plant and equipment 1,066020


Total Assets $2,064,220


Current liabilities 450,400


Long-term liabilities 450,350


Total liabilities 900,750


Common stock 387,800


Retained earnings 775,670


Total stockholders' equity $1,163.470


Total liabilities and stockholders' equity $2,064,220


Net profit margin? better or worse?

Return on assets?better or worse?

Return on common equity?better or worse?

Days sales outstanding?better or worse?

Inventory turnover ratio?better or worse?

Total assets turnover?better or worse?

Current ratio?better or worse?

Quick ratio?better or worse?

Debt ratio?better or worse?

Times interest earned?better or worse?

Top Answer

Net profit margin - Worse Return on assets - Better Return on common equity - Better... View the full answer

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