Please answer the question below according to the information given in the attachment:a) Using the information provided for 31 Dec 2005, calculate the following: net working capital, current ratio, quick ratio, inventory turnover, average collection period, total debt ratio, gross profit margin, net profit margin, return on total assets, return on equity.b) Evaluate the company’s performance against industry average ratios and compare with last year’s results. Alpha Milk Corp is considering taking over their competitor, Dana DairyProducts, and asked your consultancy firm to perform financial statementanalysis to assess feasibility of this strategic initiative. You are given thefollowing key financial ratios, the firm's income statement and the balancesheet. You can assume that there are 365 days in a year.Dana Dairy Products Key RatiosIndustryAverage1.3ActualActual20042005Current Ratio1.0Quick Ratio0.80.7530 daysAverage collection Period 23 daysInventory TurnoverDebt Ratio21.71964.7%50%Times Interest Earned4.85.5Gross Profit MarginNet Profit Margin13.6%12.0%1.0%0.5%Return on total assets2.9%2.0%Return on Equity8.2%4.0%Income StatementDana Dairy ProductsFor the Year Ended December 31, 2005$100,00087,000$13,00011,000$2,000Sales RevenueLess: Cost of Goods SoldGross ProfitsLess: Operating ExpensesOperating ProfitsLess: Interest ExpenseNet Profits Before Taxes500$1,500600$900Less: Taxes (40%)Net Profits After Taxes Balance SheetDana Dairy ProductsDecember 31, 2005AssetsCash$ 1,000Accounts Receivable8,900Inventories4,350$14,250Total Current AssetsGross Fixed Assets$35,000Less: Accumulated DepreciationNet Fixed Assets13,25021,750$36,000Total AssetsLiabilities & Stockholders' EquityAccounts PayableAccruals$ 9,0006,675$15,6754,125$19,8001,00015,200$16,200$36,000Total Current LiabilitiesLong-term DebtTotal LiabilitiesCommon StockRetained EarningsTotal Stockholders' EquityTotal Liabilities & Stockholders Equity

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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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Please answer the question below according to the information given in the attachment:

a) Using the information provided for 31 Dec 2005, calculate the
following: net working capital, current ratio, quick ratio, inventory
turnover, average collection period, total debt ratio, gross profit margin,
net profit margin, return on total assets, return on equity.

b) Evaluate the company’s performance against industry average ratios
and compare with last year’s results.

Alpha Milk Corp is considering taking over their competitor, Dana Dairy
Products, and asked your consultancy firm to perform financial statement
analysis to assess feasibility of this strategic initiative. You are given the
following key financial ratios, the firm's income statement and the balance
sheet. You can assume that there are 365 days in a year.
Dana Dairy Products Key Ratios
Industry
Average
1.3
Actual
Actual
2004
2005
Current Ratio
1.0
Quick Ratio
0.8
0.75
30 days
Average collection Period 23 days
Inventory Turnover
Debt Ratio
21.7
19
64.7%
50%
Times Interest Earned
4.8
5.5
Gross Profit Margin
Net Profit Margin
13.6%
12.0%
1.0%
0.5%
Return on total assets
2.9%
2.0%
Return on Equity
8.2%
4.0%
Income Statement
Dana Dairy Products
For the Year Ended December 31, 2005
$100,000
87,000
$13,000
11,000
$2,000
Sales Revenue
Less: Cost of Goods Sold
Gross Profits
Less: Operating Expenses
Operating Profits
Less: Interest Expense
Net Profits Before Taxes
500
$1,500
600
$900
Less: Taxes (40%)
Net Profits After Taxes

Balance Sheet
Dana Dairy Products
December 31, 2005
Assets
Cash
$ 1,000
Accounts Receivable
8,900
Inventories
4,350
$14,250
Total Current Assets
Gross Fixed Assets
$35,000
Less: Accumulated Depreciation
Net Fixed Assets
13,250
21,750
$36,000
Total Assets
Liabilities & Stockholders' Equity
Accounts Payable
Accruals
$ 9,000
6,675
$15,675
4,125
$19,800
1,000
15,200
$16,200
$36,000
Total Current Liabilities
Long-term Debt
Total Liabilities
Common Stock
Retained Earnings
Total Stockholders' Equity
Total Liabilities & Stockholders Equity

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