Methodology:• Based on the above information the consulting group will conduct ratio analysis for the following ratios:o Current ratio o Receivable’s turnover o Times’s interest earned o Profit margin o Days in inventory o Return on assets o Cash current debt coverage ratio • As a next step the group will compare the ratios calculated above with industry benchmarks. The benchmarks are indicated within brackets besides each ratio.o Current ratio (3 to 1) o Receivable’s turnover (13 times) o Times’s interest earned (9 times) o Profit margin (12%) o Days in inventory (50 days) o Return on assets (12%) o Cash current debt coverage ratio (2 times Methodology:• Based on the above information the consulting group will conduct ratio analysis for thefollowing ratios:o Current ratioo Receivable's turnovero Times's interest earnedooProfit marginDays in inventoryo Return on assetso Cash current debt coverage ratioAs a next step the group will compare the ratios calculatedThe benchmarks are indicated within brackets besides each ratio.oCurrent ratio (3 to 1)oReceivable's turnover (13 times)o Times's interest earned (9 times)ooOOProfit margin (12%)Days in inventory (50 days)Return on assets (12%)Cash current debt coverage ratio (2 times)with industry benchmarks. Appendix Two (Benchmarking studies)Objective: To conduct ratio analysis of a comparable company (Waterloo Corporation) and comparewith that of the industry.AssetsCashAccounts receivableMerchandise inventoryPrepaid ExpensesProperty, plant, and equipmentTotal assetsWaterloo CorporationComparative Statements of Financial Position31-Dec-19Liabilities and shareholders' equityAccounts payableShort-term bank loan payableBonds payableCommon sharesRetained earningsTotal liabilities and shareholders' equityNet salesCost of goods soldGross profitExpensesOperating expensesAmortization expenseInterest expenseProfit before income taxIncome tax expenseProfitTotal expensesAdditional information for 201960$$$2019Waterloo CorporationIncome StatementYear Ended December 31, 20191Cash dividends declared and paid.2 Net cash provided by operating activities in 201950,000 $40,00060,00060,000300.000510.00030,000 $80,000110,000200,000120,000540.000110,00025,00020,000$6969$201822,00055,00090,00030,000260.000457.00040,00067,000170,000105,00075,000457.000800,000520.000280,000155.000125,00050.00075.00030,000118,000

Ratio Analysis - The ratio is the technique used by the prospective investor or an individual or…

Answered: Methodology: • Based on the above…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Methodology:
• Based on the above information the consulting group will conduct ratio analysis for the
following ratios:
o Current ratio
o Receivable’s turnover
o Times’s interest earned
o Profit margin
o Days in inventory
o Return on assets
o Cash current debt coverage ratio
• As a next step the group will compare the ratios calculated above with industry benchmarks.
The benchmarks are indicated within brackets besides each ratio.
o Current ratio (3 to 1)
o Receivable’s turnover (13 times)
o Times’s interest earned (9 times)
o Profit margin (12%)
o Days in inventory (50 days)
o Return on assets (12%)
o Cash current debt coverage ratio (2 times

Appendix Two (Benchmarking studies)
Objective: To conduct ratio analysis of a comparable company (Waterloo Corporation) and compare
with that of the industry.
Assets
Cash
Accounts receivable
Merchandise inventory
Prepaid Expenses
Property, plant, and equipment
Total assets
Waterloo Corporation
Comparative Statements of Financial Position
31-Dec-19
Liabilities and shareholders' equity
Accounts payable
Short-term bank loan payable
Bonds payable
Common shares
Retained earnings
Total liabilities and shareholders' equity
Net sales
Cost of goods sold
Gross profit
Expenses
Operating expenses
Amortization expense
Interest expense
Profit before income tax
Income tax expense
Profit
Total expenses
Additional information for 2019
60
$
$
$
2019
Waterloo Corporation
Income Statement
Year Ended December 31, 2019
1
Cash dividends declared and paid.
2 Net cash provided by operating activities in 2019
50,000 $
40,000
60,000
60,000
300.000
510.000
30,000 $
80,000
110,000
200,000
120,000
540.000
110,000
25,000
20,000
$
6969
$
2018
22,000
55,000
90,000
30,000
260.000
457.000
40,000
67,000
170,000
105,000
75,000
457.000
800,000
520.000
280,000
155.000
125,000
50.000
75.000
30,000
118,000

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