You have been asked by your CEO to evaluate, analyse and calculate commonly used ratios relating to a company’s profitability, liquidity, solvency and management efficiency. Requirement: ⦁ Complete the balance sheet and sales data (fill in the blanks), using the following financial data: Debt/net worth 60%Acid test ratio 1.2Asset turnover 1.5 timesDay sales outstanding in accounts receivable 40 daysGross profit margin 30%Inventory turnover 6 times Balance sheet Cash ________ Accounts payable ________Accounts receivable ________ Common stock RM15,000Inventories ________ Retained earnings RM22,000Plant & equipment ________ Total assets ________ Total liabilities ________& capitalSales ________Cost of goods sold ________ ⦁ Explain how do analysts use ratios to analyse a firm’s leverage? Which ratios convey more important information to a credit analyst those revolving around the levels of indebtedness or those measuring the ability to service debt? What is the relationship between a firm’s level of indebtedness and risk? What must happen in order for an increase in leverage to be successful? Discuss and illustrate all your answer.
You have been asked by your CEO to evaluate, analyse and calculate commonly used ratios relating to a company’s profitability, liquidity, solvency and management efficiency.
Requirement:
⦁ Complete the balance sheet and sales data (fill in the blanks), using the following financial data:
Debt/net worth 60%
Acid test ratio 1.2
Asset turnover 1.5 times
Day sales outstanding in
Gross profit margin 30%
Inventory turnover 6 times
Balance sheet
Cash ________ Accounts payable ________
Accounts receivable ________ Common stock RM15,000
Inventories ________
Plant & equipment ________
Total assets ________ Total liabilities ________
& capital
Sales ________
Cost of goods sold ________
⦁ Explain how do analysts use ratios to analyse a firm’s leverage? Which ratios convey more important information to a credit analyst those revolving around the levels of indebtedness or those measuring the ability to service debt? What is the relationship between a firm’s level of indebtedness and risk? What must happen in order for an increase in leverage to be successful? Discuss and illustrate all your answer.
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